In the legal world, don't take words at face value

I’ve often harped on about the protections offered to businesses through their terms of trade.

By Rae Nield, Auckland | Friday, 19 August 2011
I’ve often harped on about the protections offered to businesses through their terms of trade. You do have terms of trade, don’t you? If not, see a lawyer PDQ. And I mean a lawyer – a solicitor. Terms of trade are the legal firewall around your business, and should allocate risks to those who can control them!

This week, one of my long-standing clients sent me a set of Ts&Cs (as we tend to call them). They weren’t his: he had learned the easy way how useful a strong set of Ts&Cs can be when one of his big customers went belly-up and he happily discovered that he was protected by his registered security interest that covered the stock he had supplied to the customer. No, these Ts&Cs belonged to a supplier who was taking a hard line approach to a product quality problem.

If you just read the words, you might well have thought: “Well, these guys sell you the goods but take responsibility for nothing and what’s more, you even sign away your right to sue them. So we’ll just have to wear this one.” And that’s certainly what it looked like.

But, as law students, one of the first things we are taught is to look at the legal principles behind the rights we try to set up for our clients. How will this clause stand up in court? Will it protect my client, and if not, what do I have to do to make it work? So we very quickly learn not to take words at face value, but to look at how broadly they will be interpreted, and the context in which they are likely to apply.

And so it was that these Ts&Cs contained some ripper clauses. My favourite was the clause that purported to put a mortgage over the customer’s – and the guarantor’s – interests in land (which would include buildings, homes, etc). Nice try. What would you rather do: pay a disputed bill even though you knew you were in the right; risk having your home sold out under you; or pay a lawyer to find out whether or not it’s likely to be enforceable in your particular circumstances? Another clause could be loosely translated as “if the goods we supplied to you turn out to be junk and not what we thought they were, that’s your problem”. Again, would you rather give up or call a lawyer to find out if there was any remedy outside the contract? (There usually is, so make that call).

By the time I’d got to the end, I found so many bold words purporting (good legal word, that) to exclude all rights of the customer (but mostly failing if you knew your way through them) that I was thinking, “who on earth would have drafted that?”. But these days, you don’t have to be a lawyer to give legal advice. And on checking the document thoroughly, I discovered it was a standard set of terms of trade which had been purchased over the internet from a company. A limited liability company of course. Not lawyers. I didn’t go further to find out what they cost.

There are two messages here. The first (and I would say that) is that you go to a real lawyer – a solicitor – for legal advice including advice on terms of trade. And the second one – NEVER sign legal documents, even apparently harmless terms of trade, without reading them carefully. You could get badly hurt!

Rae Nield is a solicitor specialising in marketing law. This article is intended for general information, and should not be relied on as specific legal advice. You should consult a lawyer for advice relating to your own specific legal problems. Rae Nield can be contacted at raenield@marketinglaw.co.nz.