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To put it simply.

Want to know what your clauses mean?

The following are “layman’s” explanations of clauses that appear frequently in Terms and Conditions of Trade prepared by EC Credit Control.

If you require any further explanation, please do not hesitate to contact your local Business Support Specialist or Terms and Conditions of Trade drafter.

4.1 Definitions

These clauses outline certain terms and the relationship between you and your clients and need to be defined as they are referred to throughout the Terms and Conditions of Trade document. One of the clauses also outlines that any debt incurred is incurred jointly and severally, meaning that in the case of a partnership or joint account, all parties are equally liable for the full amount of the debt incurred.

4.2 Acceptance

The acceptance clause outlines that your client accepts the Terms and Conditions of Trade, as presented and that by ordering goods and services once they are aware of the Terms and Conditions of Trade they are deemed to have accepted them.

The clauses also advise that your Terms and Conditions of Trade can only be altered with approval by both parties and on top of that the clauses state that nothing in the client’s order documentation shall override your Terms and Conditions of Trade.

Note: Any form other than those provided by EC Credit Control should clearly state a provision for acceptance by the client, where the Terms and Conditions of Trade are covered on the reverse of, or attached to, that said form. Please refer to the third component of the sample above.

4.3 Electronic Signatures

This clause states that the parties have complied with laws surrounding electronic signatures and agree to accept electronic signatures as a form of acceptance.

4.4 Errors and Omissions

This clause outlines that your customer accepts, that you shall not accept liability in respect of any alleged error(s) and/or omission(s) that may be present in the documentation, due to human error (mistakes made in administration, etc.) unless such action is due to negligence or willful misconduct on your part.

4.5 Change in Control

This clause requires your customer to advise you if they change their name, address, etc, or if they are changing their business practice.

4.6 Price and Payment

This clause stipulates how you advise your customers of the price of your goods and services. Clarifying this process negates the argument of the likes of estimate versus quotation. It also advises your customer of what form of payment you will accept and when payment is to be made.

It also determines if you are defined as a credit provider under the Privacy Act (thereby, you offer a minimum of 7 days free credit).

4.7 Set-Off

This clause stops your customer from withholding payment of the full amount due when they dispute only part of an account.

4.8 Delivery

This clause determines when delivery takes place and who pays for the cost of delivery – you or your customer. It is important to define when delivery takes place for risk, warranty, and payment reasons. The clauses also enable you to charge your customer redelivery or storage costs if they don’t take delivery as arranged and explain that delivery times are approximate only.

4.9 Risk

These clauses make it clear that if the goods are damaged or stolen after delivery, then the insurance responsibility lies with your customer even though ownership may not have passed to your customer.

Additional clauses in this section are designed for your industry type, which attempts to limit your potential risk exposure during the provision of the services (i.e. accuracy to client plans or variations of samples to finished goods, etc).

4.10 Transfer of Title

These clauses determine when ownership of the goods will transfer to the customer. Ownership will only take place once you have been paid for the goods (even though the goods have passed into your customer’s possession). The title clauses together with the Personal Property Security Act 2009 (“PPSA”) clauses in your terms will allow you to repossess goods (where they have not been installed). Under the PPSA legislation, a registration validates true ownership (in the event that you are not paid, the goods remain legally yours), until such time as the registration is either removed or expires.

However, one exception does apply which is more complex in respect of the PPSA. If any goods have been installed (i.e. become a fixture or part of, a permanent structure, it will come down to what the goods are or have become) and for that reason, we would recommend you seek independent legal advice.

4.11 Personal Property Securities Act

These clauses allow you to register an interest in goods you have sold. Also, if a receiver is appointed you can have your goods removed from the pool of liquidated assets, as they will not belong to the liquidated estate. This clause also enables you to enforce your retention of the title clause.

4.12 Security and Charge

If goods cannot be recovered, by agreeing to this clause they agree to allow you to take a floating charge (registerable by you pursuant to the PPSA) over their property to the value of the goods or services.

In addition to this, if your customer defaults or breaches the contract, and any other security provided in the contract is deemed to be insufficient to secure any monies owed to you by your customer, the clause will provide you with the ability to engage a solicitor will need to affect a caveat on your behalf over any real property or land owned by your customer.

4.13 Defects/Warranties and Returns

The single most common excuse we hear from debtors who refuse to pay their account is that the goods or services provided were “defective”. This clause determines a time limit for reporting defects evident on delivery of goods or services you have supplied plus it advises your customer what your obligations are to them under the Competition and Consumer Act 2010 (CCA) for all other defects and the limitations of the same.

Under the provisions of these clauses, you may also offer additional warranties to your customers if you wish. Note: Any additional warranty you offer will not supersede or negate CCA legislation, however, any expressed warranty offered over and above the statutory warranties must be provided under a separate document as required by the CCA.

The clauses also limit your warranty on goods supplied (where applicable) to that which is provided by the manufacturer of the goods. Further clauses set out the conditions applicable to the return of goods whether this is required under the CCA or otherwise.

If a second-hand goods clause has been inserted into your Terms and Conditions of Trade then this clause sets out that only a limited warranty as required by the CCA is offered on second-hand goods. It is a further “caveat emptor” (i.e. let the buyer beware) clause relating directly to second-hand goods.

4.14 Intellectual Property Rights

These clauses protect your intellectual property rights where necessary. It stops your customer from on-selling or using any designs that you may have provided. It also indemnifies you against actions from any third party that owns any designs or plans your customer provides you with.

4.15 Consequence of Default

The provisions of the signed contract will allow you the right to pursue the client legally and to pass on any associated debt recovery or legal costs, in the event you need to take legal action against a customer. Furthermore, at your discretion, you can also add default interest to any invoice/statement once they become overdue (interest is calculated at a rate of 2.5% compounding monthly from the date that the debt becomes overdue, this equates to 30% per annum).

Remembering that any legal action taken in pursuit of debt recovery will come down to the jurisdiction of the court on the day as to what costs are accepted and awarded by the court (these need to be considered to be fair and reasonable in all cases), which is why it is important to have a signed contract that gives weight to the argument that acceptance and disclosure have occurred and that the client is fully aware of their obligation of payment.

4.16 Cancellation

This clause gives both parties the right to cancel the contract before you have provided any goods or services.

4.17 Privacy Act

Amongst other things, this clause gives you the ability to do a credit check on your customer so that you can assess their creditworthiness or, in regards to Pty Ltd companies, list them with a credit reporting agency should they default on payment.

4.18 Unpaid Seller’s Rights

These clauses, if included in your Terms and Conditions of Trade allow you to take a lien over goods that are in your possession (but owned by your customer) if you haven’t been paid. Furthermore, it gives you the right to sell any such goods if you don’t get paid at all.

4.19 Service of Notices

This clause outlines how notices may be given and received under the contract.

4.20 Trusts

This clause relates to special conditions where your customer is a trustee acting for a trust wishing to open a credit account. It is important to obtain the details of the trustees of a trust, as the trust is a legal entity in its own right, it can sue and be sued but through its trustees.

4.21 Enforcement and Validity

This clause states that just because you have not invoked any clause in your Terms and Conditions of Trade (e.g. you haven’t previously charged your customer penalty interest) then that in itself will not prevent you from invoking that clause at any time you choose. It also allows that if for any reason a particular clause is invalidated by a court that in itself, will not negate the whole contract.

Due to unfair legislation, the customer will have similar rights under this sub-clause.

4.22 Jurisdiction

In the event that a dispute needs to be heard in a specific court, this clause defines in which courts and under which law it is to be heard.

4.23 Assign

These clauses allow you to license and/or assign the rights and/or obligations of the contract without the customer’s consent. Secondly, the customer cannot license and/or assign without your written approval.

4.24 Subcontract

This clause allows you to subcontract work out to third parties.

4.25 Review

In this clause, you reserve the right to amend your Terms and Conditions of Trade at a later date.

4.26 Force-Majeure

This is the “Act of God” exclusion clause. It is written in favour of both parties and limits any liability in such an event that is beyond your control, For example, pandemics. This clause does not apply to a failure by the client to make a payment to you.

4.29 Authorisation to Contract

This clause means that both parties have the right to enter into the contract and confirm that they are solvent at the time of entering into the contract and acknowledge that the contract is binding and enforceable.