Business-To-Business Contracts – Are The Terms Enforceable?

It is generally considered that businesses are free to contract with other businesses on whatever terms they see fit, without the law intervening as it does to protect individual consumers.

The court is often reluctant to intervene in business-to-business contracts on the premise that a commercial party has the freedom to impose or negotiate its own terms to an agreement, and those terms are fully enforceable if freely agreed. Whilst that may be the case where the commercial parties are of equal size and bargaining power, many smaller businesses often find themselves contracting with larger businesses, with limited negotiating power or ability to change the terms governing their relationship. In those cases, smaller businesses either feel they have no option but to deal on the larger businesses’ terms or they do not appreciate the consequences of doing so.

It is always prudent to take appropriate legal advice on the terms of a contract before signing up to the same, or if you are a business wanting to know if your terms and conditions are valid and enforceable against a party.

There are a number of ways a term of a contract between businesses could be held unenforceable:

• The term is not properly incorporated into the contract. This could be the case if a business is looking to rely on unsigned documents that have not been brought to the other party’s attention. Furthermore, more unusual or onerous clauses will need to be sufficiently brought to the attention of the other party.

• The term limits or excludes liability. Such a term may be unenforceable under the Unfair Contract Terms Act 1977 unless it is a fair and reasonable term to be included, having regard to the circumstances known or ought reasonably to have been known, or in the contemplation of the parties when the contract was made. In the case of contracts dealing with the sale of goods, any terms which limit liability for a breach of statutory implied terms relating to the title of goods (i.e., that a seller has a right to sell the goods) will be void. Likewise, any terms limiting liability for negligence of a breach of a duty of skill or care causing death or personal injury will be void.

• Other terms which may not expressly limit liability but achieve a similar effect could also be held unenforceable, unless the term is reasonable. This would likely cover terms which allows a party to not perform its obligations under a contract, for example, a term allowing a party to terminate the contract at will, or terms which allows a party to perform the contract in a way that is substantially different to that which was reasonably expected when the contract was made.

• The term is a penalty which applies in the event of a breach of contract. A term can be a penal if it imposes a detriment on the party in breach which is out of all proportion to the innocent party’s legitimate interest in enforcing the primary obligation of the contract.

If you are a business concerned about the enforceability of your terms and conditions or want to take advice on the terms of a contract which you have been asked to enter into, please contact us on 0116 289 7000 or info@bhwsolicitors.com.