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Posted: 16th April 2014
Written by: James Towler

Saying what you mean

Contract Law

Big companies like to impose their standard terms and conditions on smaller ones.

Smallco may be so excited to win the business that it accepts those terms without reviewing them. After all, Bigco has a good reputation and its contracts must be fair and reasonable, mustn’t they?

Not necessarily. Here are a couple of examples:

1. Our clients were supplying a very valuable piece of plant to an international oil company, which sought to impose its standard terms, which included that risk in the plant remained with our clients until it had been tested on site – which was several thousand miles away – and that our clients had to pay for delivery to site. The terms also included comprehensive anti-bribery conditions.

Fortunately for our clients, we successfully renegotiated the risk, delivery and payment terms, so that risk passed to the oil company and payment was made when the plant left our clients’ premises, having passed acceptance testing at our clients’ works. The oil company agreed to be responsible for delivery to site.

The piece of plant was taken thousands of miles by road from the UK, but when it arrived at the border of the country where it was to be used, it was impounded by local customs officials – backed up by local police officers, who were looking for a substantial back hander to allow it into the country.

Had our clients accepted the terms presented, they would have had to somehow persuade the customs officials and police to allow the plant into the country and, had they paid back handers, they would immediately have been in breach of the anti-bribery provisions. They would also have faced penalty clauses for delays in delivery – and wouldn’t receive payment for the valuable piece of plant until they had resolved these issues.

2. Another client imported renewable fuels to UK power stations to burn in coal fired plants to enable them to comply with environmental legislation, which required them to burn a proportion of non-fossil fuel.  One particular power station insisted on using its terms and conditions unaltered. The trouble was that they were designed for purchases of coal, with strict specifications for the fuel supplied. Our client company was supplying olive oil residue from Spain and there was no way that it could guarantee  this would comply with the tight specification insisted upon by the power station. We advised our client that they couldn’t afford to enter into the contract as presented because if the biomass they supplied failed to match the specification and caused any damage to the power station, our client would be liable for potentially huge damages claim that would cause it to go out of business.

Fortunately we were able to reach a compromise and amend the specification, so that our client  wasn’t exposed to the potentially huge liabilities it would otherwise have faced. It went on to sell a number of consignments of biomass to the power station.

Time and money spent on negotiating an even handed bespoke contract is always a sound commercial investment.   The costs and time involved in litigation or the financial liabilities imposed by another party’s contract can be excessive and may even impact on a company’s ability to carry on trading.  As the above examples demonstrate, the commercial and financial consequences could have been crippling for the parties involved had they not had the protection of the appropriate contracts