Terms and Conditions: the Secret Ingredient to Success in International Trade
21 January 2020
Written by Elizabeth Ward and Dr. Martin Douglas Hendry of Virtuoso Legal and originally published in the Spring 2018 edition of World Trade Matters.
Embarking on international trade offers abundant opportunities and challenges for businesses. This is especially so for the current environment; where developments such as Brexit will present a unique set of pitfalls for trade.
Depending on your knowledge of them, new markets can be rife with unknown quantities such as what the local legislation requires and what hoops need to be cleared to have goods and services accepted into a new market. Whether it is: building new relationships, dealing with local customs agents or local traders, the legal aspects of international trade cannot be overstated.
As always, preparation is central to success; and a comprehensive set of terms upon which you trade can be the key to successfully traversing such unknowns.
The Secret to Success
Do Business Your Way
A steady ship is always the preference. A good set of terms and conditions of business allow you to establish with any and all contracted parties how business will be undertaken between you.
A finely considered set of T&Cs will allow you to determine from the outset of any agreement exactly how business between the parties is going to be conducted.
If you view T&Cs as merely a formality, or a standard template and of no particular value, then you may find yourself having to comply with less than favourable terms.
Ensuring you get paid
The biggest fear for traders internationally is that of not being paid; or only being part-paid, or goods and services being rejected and then not receiving payment.
A good set of terms will set out precisely how payment is to arise. For example, as above, it can determine that goods and services are part-paid for up front by the buyer. This reduces risk for a producer who is manufacturing specific goods for sales overseas as the manufacturing costs are at least covered by the upfront payment.
Your terms should cover all aspects of payment such as whether irrevocable letters of credit are required, what percentage deposit is required, and what triggers the release of any balance of payment. Other important terms would include things such as who checks the goods on arrival and what sign off procedures there are.
Terms and conditions function as an important declaration of whom is responsible for what; and, crucially, who is liable legally (and financially) should negative outcomes arise.
By way of example, if goods arrive at a destination and part of them are spoilt, the terms should cover things such as who checks the state of the goods, and how missing or spoilt items are accounted for. If half the shipment is missing – who will claim on the insurance or alternatively if goods have to go into storage at the port, who will pay for such storage.
Well drafted terms and conditions should also allow you to establish the legal jurisdiction in which any legal proceedings (by either party) should be commenced; or ensure that the same is resolved through alternative dispute resolution (ADR).
In each case, clauses such as these can allow you to avoid the cost and confusion of defending in foreign courts.
Terms and conditions as we refer to them here can be and frequently are incorporated into contracts such as distribution agreements or manufacturing agreements. The way we normally work with clients is to walk them through a set of heads of terms to create a wish list of important issues. These can then be used to negotiate an agreement or alternatively used to draft a bespoke set of terms to use.
Winning the “Battle of the Forms”
Every business worth dealing with has a set of terms and conditions. This can lead to conflict as a buyer tries to impose their set of T&Cs over and above the sellers. This is often referred to as a “battle of the forms”.
Whilst it seems terse to seek it, an advantage can be achieved over a business partner by ensuring that your T&Cs are more comprehensive than those of the other side, and do not include onerous clauses or overly complicated legal jargon.
If drafted by an expert with this in mind, you may ensure that arrangements are entered into under your terms and conditions. This not only establishes transparency, fairness and uniformity but confirms to your new business partner that you are a trading force to be taken seriously.
This creates proactive stance for your business within any new commercial relationship– allowing you to operate your business and engage with your partner in accordance with familiar terms.
Ultimately, a well drafted set of terms and conditions is a business-critical document. Terms that are bespoke and reflect how you trade can be a major investment in reducing the risk of financial and legal exposure and loss.
As a general consideration if you are exporting goods over the value of £20,000 at any one time or to any one customer, you should be investing in a fully compliant and tailored set of terms.
These, of course, can be used multiple times and in more than one country for export, making the investment of a few thousand pounds to create them moot compared to the risk they will protect you from.
Prevention is better than cure any day of the week – and the losses aren’t just financial. An international trade dispute will cost you and your management team countless sleepless nights, travel and lost time growing in overseas market.
Remember: think carefully through the issues first and then consult an expert in international trade agreements.
Elizabeth Ward is the founder and principal of Virtuoso Legal, the UK's leading intellectual property specialist law firm. Liz founded the firm in 2007 and has overseen its growth into a world-wide force in IP commercialisation and litigation.
Dr. Martin Douglas Hendry is Virtuoso Legal's digital marketing manager. He has a background in design, and closely reviews and researches the latest issues in IP to identify the important themes for the firm's clients