The importance of understanding your business' terms and conditions

“I consider that his evidence was significantly vague both on the contractual details and their effect on the product and services that he was selling…I infer that he had not been given sufficient training on contractual matters within his sales environment…”

The judge’s comments regarding the lack of training of a sales manager in the recent case of Microlise Ltd v James Kemball Ltd and others [2023] highlight some of the issues that can occur when trying to put in place a valid contract.

Case background

Microlise sent Uniserve a Microlise Quotation/Order (“Q/O”) document for 100 telematic devices. The Q/O form contained a full two page copy of Microlise’s general terms and conditions, and the rider on the form referred to “Microlise standard terms and conditions (available on request).”

Further Q/O forms were sent which were accompanied by a version of Microlise’s Supply of Products and Services Agreement (“SPSA”) which was referred to in the covering email as “our standard contract”.

A subsequent Q/O form contained a different rider which stated that “any customer specific terms and conditions previously agreed with Microlise will override the Microlise standard terms & conditions enclosed.”

The SPSA was not signed and returned by any of the defendants but various Q/O forms were signed for different orders. After a dispute arose between the parties, the court held a preliminary issue trial to determine various questions, including the question of which terms and conditions applied. 

The judge found this was not a traditional “battle of the forms” case because the competing forms both came from the same side. This is one of the more unusual aspects of this case, as ordinarily we would be looking at a head-to-head battle between opposing standard contract terms, rather than one party trying to explain which of its two sets of conditions were supposed to apply.

Microlise contended that each Q/O form incorporated the general terms and conditions rather than the SPSA. They argued that the SPSA was always a draft and offered to the defendants for negotiation and signature but was never completed and never signed.

The defendants argued that even though the SPSA was not signed, the court could infer that a contract had been agreed on its terms. This was on the basis that the objective intention of the parties was always that the SPSA terms were to apply in preference to the general terms.

 

The case decision

The judge observed that the original rider on the Q/O form referred to standard terms and conditions available on request, not to the general terms which were on the form. He found that the reference to “standard terms” must have been to the SPSA which was the document provided to the defendants by Microlise’s sales manager.

The judge found the SPSA terms were more detailed than the general terms, and those general terms were never referred to by the sales manager. He did not explain to the defendants that there was a choice between the standard and general terms. He did not explain the SPSA terms were negotiable.

In the judge’s view, the signed Q/O form was sufficient to constitute an offer by the defendant, which was accepted by Microlise by performance.

The judge approached the matter on the basis that the court had to look at the correspondence as a whole and undertake an objective interpretation of whether, on its true construction, the parties had agreed to the same terms. Post-contractual conduct was admissible in aiding his objective assessment of the parties’ intentions.

The judge also reminded himself of the significance of contemporaneous documentary evidence as an important tool in his objective assessment.

Having taken those considerations into account the judge concluded that, when viewed objectively in the contextual factual matrix, the SPSA was an umbrella agreement that embraced quotations and orders. His objective assessment of the parties’ intentions was that a contract was agreed through the vehicle of the SPSA for the formation of legally binding relations. In reviewing the position, he took account of the changes in wording in the rider in the subsequent Q/O forms and concluded that the SPSA amounted to customer specific terms and conditions.

The judge therefore found that the unsigned SPSA terms applied and overrode the general terms on Q/O forms.

 

What can we learn from this case?

Put in place clear contracting processes

There may be very valid reasons why your business has more than one set of terms, but those using them have got to understand in which scenarios each set should apply and make sure that is properly communicated both internally and to the customer.

The accompanying paperwork which is used as part of the sales process such as order forms or quotations also needs to be clear as to which set(s) of terms will be applicable. This is particularly so if more than one set may be applicable, depending on which combination of goods or services is purchased. You therefore need a clear process in place when engaging customers which is easy to understand and easy to follow both for the sales team and the customer.

Ensure incorporation of your contract terms

It may sound really obvious, but there is no point in having terms and conditions which are drafted to provide protection for your organisation against various commercial risks if they do not end up incorporated into your contracts or if the wrong set of terms is incorporated.

This leads onto the next learning point:

Make sure your sales team have adequate training about contracts

The judge’s comments about the lack of training for the sales manager highlight the importance of sales teams understanding your standard contract paperwork and what is necessary to incorporate your terms or at least have the best possible chance of arguing they apply.

In this case, the parties will have had an extra layer of cost and uncertainty trying to work out whether they even had a contract and, if so, what its terms were before they even get into the main battle between them.

Understand the risk areas and make sure they are flagged internally

Those responsible for preparing contractual paperwork need to have an understanding of how terms are incorporated. This will help them to know when they should be flagging issues internally if they are encountering problems.

Do you have an internal process which highlights customers who are receiving goods or services without having the appropriate order paperwork completed? Once a customer is engaged, there can be a temptation to get on with delivering the goods or services and worrying about the paperwork later on. In this case, over £1m of goods were provided without the parties having sorted the paperwork out.

Whilst in this case the court found that an unsigned contract was binding on the parties, each case will turn on its facts.

Keep it simple

Lastly, keep things simple. You will make life a lot easier if you use the same expression to describe your terms on your order forms etc. as the description used on the face of those terms, particularly where you have more than one set. E.g. if your order form refers to “Standard Terms and Conditions” being available on request, then heading those terms the “Standard Terms and Conditions” is going to make it easier to ensure the right document is incorporated.

 

Do you need support with your contracts and training for your sales teams?

If you need support with training your sales teams to understand the key risk areas when entering into contracts, our team of experts can assist. Get in touch today with our Dispute Resolution team on [email protected], or directly with Rowan Turrall on [email protected].