Business-to-business (B2B) contracts can come in a variety of different forms. Some may be simple one-off orders for goods or services where standard terms and conditions of one party apply (often known as the ‘small print’). Others may be in a form prepared specifically to govern the relationship the parties are seeking to establish and are likely to govern the relationship over a longer period. These may well be negotiated and almost certainly will be signed.
It is all too common with B2B contracts to find terms which are unfairly weighted in favour of one party. An example would be a provision limiting the liability of a supplier to such an extent that it leaves the customer with no meaningful remedy should the supplier fail to comply with its obligations under the contract. The reasons behind why unfair terms are included in contracts can vary, here are several examples:
This is potentially a significant issue for both the party proposing the terms and the recipient. Compared with the position in relation to business to consumer contracts, there are significantly fewer restrictions with B2B contracts on the freedom of the parties to reach such agreement as they choose. There is certainly no overriding principle of law requiring terms to be objectively fair. Therefore, the recipient of a contract should take care to read it carefully and, if in any doubt, seek expert legal advice as to its nature and effect. It is better to ensure, by negotiation where practical, that the terms of the proposed contract are satisfactory before committing to them.
There are several very significant rules which impact on the terms of B2B contracts of which a party proposing the terms of a contract needs to be mindful. Failure to do so may lead to provisions being found to be void and the relevant party being worse off than they would have been had they taken a more balanced approach to the relevant provision.
For a party who has agreed to the relevant provision, whether by reason of inequality of bargaining power or failure to appreciate the nature and effect of the provision, these rules may provide some relief in the event of a dispute. These rules include:
It is also important to bear in mind that the way a court interprets a contract may impact the extent to which the relevant term is enforceable. For example, the court will generally work on the assumption that the parties did not intend to give up their legal rights without clear words.
Therefore, general or ambiguous forms of words (e.g. referring simply to ‘any liability’) probably won’t have as wide-ranging effect as hoped by the party seeking to rely on them.
If you are seeking to prepare a contract or terms and conditions of trading, you should ensure that the terms are carefully considered and drafted. Expert legal advice will help minimise the pitfalls described above and reduce the likelihood of them being challenged.
If you receive a contract or terms and conditions of trading from another business, you should ensure you read them carefully and obtain expert legal advice if you do not understand their nature and effect or feel certain terms are unfair or otherwise wrong.
It will generally be far cheaper and easier to review and negotiate the terms before committing yourself to the contract than it will be to challenge a term once you have committed to it. Prevention is better than cure, particularly as there are no guarantees that a particular provision will be capable of successful challenge.
Finally, if you end up in a dispute regarding one of these provisions (whether you are the party seeking to challenge the provision or the party seeking to rely on it), seeking expert legal advice as to how to enforce the relevant provision is very important.
WHN is a law firm with eight locations in Greater Manchester and Lancashire. Its teams of specialist, friendly lawyers are committed to delivering outstanding results and service to businesses, individuals and families. WHN is a member of Boost & Co: additional public and private sector organisations affiliated with Boost that can help businesses grow.
Paul Matthews is head of WHN's corporate and commercial team and advises clients on a range of corporate and commercial transactions including company and business sales and acquisitions, management buyouts and general commercial contracts.
Boost is helping Lancashire businesses. We have a range of funded support programmes and a team of business advisers you can talk to. To speak to someone from the Growth Hub about business support, contact Boost online or call 0800 488 0057.
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