14/12/12

Keep paperwork current to avoid costly court case

Person writing.

Keeping paperwork up-to-date makes good business sense

by business editor Trevor Sturgess

Making sure a business’ standard terms are incorporated within signed agreements, are up to date and clearly printed on all key trading documents – plus good record keeping – could help businesses avoid expensive court cases, according to Kent legal specialists Vertex Law.

The Kings Hill-based team is issuing the advice after a recent High Court case in which a company faced a claim for up to £7m in liability for negligence or breach of contract.

In Allen Fabrications Ltd v ASD Ltd, it was alleged that the defendant, ASD, failed to deliver a sufficient number of fixings required to secure a metal grating safely or to warn the claimant, Allen Fabrications, that additional fixings could be needed.

The court had to consider whether ASD’s standard terms were incorporated into the agreement with Allen Fabrications without the paperwork available as evidence.

Sonel Martin, of the Vertex Law commercial team and pictured below, said: “This case, and associated legal costs, could have been greatly simplified or prevented by good record keeping and essential corporate stationery auditing and updating.

“The judge found that in order to get goods on credit from ASD, Allen Fabrications must have submitted a signed credit application form which incorporated ASD’s terms into all subsequent contracts.

“ASD was not able to produce this form from its records. If it had been able to the trial and all associated costs may have been avoided.

Vertex Law's Sonel Martin “Furthermore, lack of retained or properly presented paperwork associated with the transactions between the two companies complicated the hearings and so inevitably added to the costs.

“For example, ASD pleaded that its standard terms were printed on the back of all its invoices. However, it turned out they were not. Not only did ASD have to withdraw this allegation but it led to the claimant suggesting the terms may not have been printed on the back of advice notes either.”

The judge also considered whether, had he found that there had been no signed agreement between the parties, the specific clause limiting ASD’s liability would have been considered so onerous, or unusual, as to require ASD to draw them specifically to the attention of Allen Fabrications.

“The judge commented that an exclusion or limitation clause is not automatically onerous and that terms in very common use between two commercial parties had to be seen in context. There is no requirement for special notice where the other party is, in general terms, aware of the existence of the term or that the document contained or is likely to contain the onerous term, even if the term has not been read,” said Ms Martin.

“He noted that Allen Fabrications was a commercial customer who had a well-established previous course of dealing with ASD and would have seen their standard terms many times previously. This was sufficient for the limitation clause to be enforceable.

“This case highlights the need for businesses, and in particular their sales and purchasing teams, to have proper procedures in place.

"They need to ensure that their standard terms and conditions are properly incorporated into their contractual relationships, whether by express statement of the terms in the contract or by express reference to them within as much pre-contract and contractual documentation as possible, such as quotations and confirmation of purchase orders, before the contract is made, and that copies are kept.”