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The pitfalls of drafting your own agreements

We were recently doing some work for a client in business who had documents that they had compiled themselves from a number of different sources. Some parts were from customers, some from suppliers and others from the Internet. They then had a customer who was not paying them for goods and services and wanted to know what could be done to get paid.

Our first job was to work out what Terms & Conditions applied to the customer, including how much was owed, the date from which it was owed, and whether there were any other rights available to our clients. Their Terms & Conditions included different references to them and to their ‘customer’ or ‘client’ or even in some instances, ‘you’. Confusion arises where there are inconsistencies in these documents and it takes time to work it out (and costs money) and more importantly, to get our client their money.

Putting together a number of different documents to create your ‘own’ document is usually a recipe for disaster. If your documents are not drafted correctly, you are exposing your business to risk. Some things that should be considered:

1. Who has to do what and when? Time frames and obligations must be specified. Terms such as something is to occur ‘as soon as practicable’ doesn’t mean anything as there will then be a dispute as to what would be considered ‘reasonably practicable’.

2. How can you be protected? For example, registering your interest in goods sold to a customer on the Personal Property Securities Register. This will provide the business with security over goods. Retention of Title provisions are not sufficient by themselves.

3. What is default and what happens if there is a default? Who can do what and when, and the consequences of default including interest, recovery of goods and so on.

4. The laws that apply. Some industries have particular laws to assist them but they need to be included in Terms & Conditions or documents and must be followed. Some laws that affect supply include the Building and Construction Industry Security of Payment Act, Work Health & Safety Act and consumer laws such as the Competition & Consumer
Act. If you do not address the relevant law you may be prevented from doing what you want to do.

Getting paid, and paid on time, is fundamental to being in business. Getting Terms & Conditions correct saves time and money and means you get paid earlier. Contact our Commercial Litigation Team today to discuss how we can help you implement these strategies.