It is vital that you review your terms of trade regularly and ensure that the terms and conditions are sufficient to protect the rights of your business. Terms of trade are the lifeline of your business and govern your interaction with your customers, ensuring you get paid for your good or services.
It is important to ensure that each invoice issued is linked back to these and to the terms and conditions upon which you operate, and that they contain appropriate security clauses.
The recent case of Central Cleaning Supplies (Aust) Pty Ltd v Elkerton [2014] is a good example of why having sufficient terms of trade are essential to your business.
In this case the owners of the business failed to take appropriate care in the construction of their terms of trade and lost a substantial amount of money as a result of their customer Swan Services Pty Ltd (“Swan Services”) going into liquidation.
The facts were that Central Cleaning Supplies (“Central Cleaning”) provided cleaning products to Swan Services on a 30 days credit basis, as follows:
- Swan Services signed a credit application at the very beginning of their relationship, which provided for 30 days credit to be given to Swan Services by Central. That credit application made reference to Central’s ‘Standard Terms and Conditions’ but those terms and conditions were not attached to the credit application and were not provided to Swan Services.
- Swan Services would place an order for cleaning equipment which Central would then supply together with an invoice which contained the retention of title clause. In practice this meant that Central issued a new invoice for each order. The invoice did not state that it was subject to the Standard Terms and Conditions.
Upon Swan Services going into liquidation, Central Cleaning attempted to assert ownership over a substantial amount of cleaning products that were in the possession of Swan Services, but had not yet been paid for. However Central Cleaning was unable to tie the retention of title clause back to the original credit application, due to their invoices not stating that they were subject to the standard terms and conditions of the business.
This meant they had no ownership rights of the products under the Personal Property and Security Act 2009 (“PPSA”) and therefore could not recover the cleaning products, leading to a substantial loss. The Court found that each new invoice issued to Swan Services constituted a new and distinct contract of sale, rather than an ongoing sales agreement pursuant to the original credit application and terms and conditions, all because each invoice failed to make reference to these.
This oversight in the construction of Central Cleaning’s terms of trade left them out of pocket for a large sum.