Making sure your terms and conditions actually apply

The fundamentals

A contract has three core elements.

• Offer. A proposal setting out the terms on which someone is prepared to do business. "I will buy your trailer for $2,000" is an offer.
• Acceptance. Agreement to the terms of that offer. "Yes, done" is acceptance.
• Consideration. Value moving each way. You get the trailer, they get the money.

The question for your business is which of those steps your terms attached to.

The only reliable point at which your terms become part of the contract is the offer. Someone has to make or accept an offer that includes them. If a different offer was accepted, you have a different contract.

For most businesses that means providing terms up front and early, before work starts and before goods move.

Three mistakes that cost real money

1. Terms on the invoice. You cannot apply terms retrospectively. Printing them on the back of an invoice issued after the work is complete achieves close to nothing. By then the contract exists on whatever terms were agreed.
2. No concluded agreement. After a run of meetings, emails, text messages and calls, the actual terms become blurry. Somebody starts work assuming the deal is X while the other side assumes it is Y. Fix this by confirming the terms in writing before work begins.
3. Your terms quietly replaced by theirs. Dealt with below, because it is the most common and the least noticed.

A signed contract remains the best answer. We also understand that in a lot of industries that is not how deals get done, so the practical goal is a clear written record of what was agreed and when.

You can only contract with a legal person

Terms are only useful if you can enforce them, and you can only enforce a contract against an identifiable legal entity.

If you agree to supply a tonne of grapes a month to "Dave’s Delicious Drop", who is the counterparty?

• Dave personally;
• a company Dave owns;
• a company Dave directs but does not own;
• a company someone else owns entirely;
• a partnership between Dave and a business partner;
• a trustee company acting for a trust.

A business name is not a legal entity. If you have to recover twelve tonnes of unpaid grapes, discovering that you cannot identify the debtor is cost and delay nobody needs.

Check the ABN and ACN, name the entity in full including any trustee capacity, and keep it consistent across the quote, the contract and the invoice. See our article on business structures.

The counteroffer problem

This is the one that catches established businesses, usually where the process runs quote then purchase order.

1. You issue a quote stating that your terms and conditions apply.
2. They issue a purchase order accepting your price and stating that their terms apply.
3. You do the work.

Whose terms govern? Usually theirs.

Your offer was not accepted. It was rejected and replaced by their offer on their terms. By performing, you accepted it.

Realistically you want the work, so the options are:

• read their terms and decide whether the differences actually matter, and proceed if they do not;
• push back on the specific clauses that are deal breakers, rather than the document as a whole;
• negotiate so that your terms apply, which is the strongest position and the slowest to reach.

Each of these slows things down. Weigh that against the risk you are accepting. What you should not do is assume your quote settled the question.

Unfair contract terms, since November 2023

One further point, because it changed after this article was first written.

On 9 November 2023 the unfair contract terms regime under the Australian Consumer Law was significantly strengthened. Including an unfair term in a standard form consumer or small business contract, or applying or relying on one, is now prohibited and attracts substantial civil penalties. Previously the term was simply void.

The regime also now covers a wider range of small business contracts, based on employee numbers and contract value.

If your terms have not been reviewed since 2023, they should be. Clauses that were merely unenforceable before can now expose the business to penalties. See our page on terms and conditions of trade.

Clarity is the whole answer

Two things, and both are cheap.

1. Be clear about what the terms are, and record them before performance begins.
2. Be clear about who you are dealing with, and name the entity properly.

Almost every contract dispute we see involves uncertainty about one or both. Nobody thought about it at the time because the deal was going well. A few minutes at the start avoids most of it.