Company Law - Small Business Issue
Discussion
I having detailed an issue I am having below, see if someone has any ideas, really appreciate any direction with it:
I run a small business that manufactures ladies clothing out of India. We are registered in UK and most of our clients are from the UK.
We have a client which placed an order for a few hundred dresses, a swatch of the fabric to be used for the garments was sent to the client (which was approved), prior to the fabric being dyed to the client’s required colour. On the invoice we asked for a 40% deposit, as we do with all our clients. This is to cover our raw material costs and alleviate the issue of clients cancelling orders when production has commenced and raw materials have been bought. The client paid the deposit required, and the purchase of fabric commenced. A couple of weeks later, we sent a swatch of the fabric after the colour had been added to the fabric, the complete job lot of fabric to be used for all the garments had been dyed at this stage. The client claimed the fabric was not the same, even though the very same fabric chosen was just dyed to the client’s required colour. I found out that the client had changed their mind and found another supplier, this is the reason that they did not want to continue the production. We found this out from another source; the client was very arrogant and did not want to divulge this information. We are now left with metres and metres of fabric which was specifically dyed for the client, and cannot be used again. The client wants a full refund of their deposit.
My question is; am I obliged to give them a full refund, even though we have bought and dyed the fabric? What am I obliged to refund, if anything. I have had many expenses on top of this such as courier costs, my time and effort, overseas calls, etc. I would have thought the whole point of a deposit is that it is non-refundable, to protect businesses like me from orders being cancelled midway through the manufacturing process?
I appreciate anyone's thoughts on this matter.
Thanks
I run a small business that manufactures ladies clothing out of India. We are registered in UK and most of our clients are from the UK.
We have a client which placed an order for a few hundred dresses, a swatch of the fabric to be used for the garments was sent to the client (which was approved), prior to the fabric being dyed to the client’s required colour. On the invoice we asked for a 40% deposit, as we do with all our clients. This is to cover our raw material costs and alleviate the issue of clients cancelling orders when production has commenced and raw materials have been bought. The client paid the deposit required, and the purchase of fabric commenced. A couple of weeks later, we sent a swatch of the fabric after the colour had been added to the fabric, the complete job lot of fabric to be used for all the garments had been dyed at this stage. The client claimed the fabric was not the same, even though the very same fabric chosen was just dyed to the client’s required colour. I found out that the client had changed their mind and found another supplier, this is the reason that they did not want to continue the production. We found this out from another source; the client was very arrogant and did not want to divulge this information. We are now left with metres and metres of fabric which was specifically dyed for the client, and cannot be used again. The client wants a full refund of their deposit.
My question is; am I obliged to give them a full refund, even though we have bought and dyed the fabric? What am I obliged to refund, if anything. I have had many expenses on top of this such as courier costs, my time and effort, overseas calls, etc. I would have thought the whole point of a deposit is that it is non-refundable, to protect businesses like me from orders being cancelled midway through the manufacturing process?
I appreciate anyone's thoughts on this matter.
Thanks
I think its clearer than that if you can proove that the material was the same as that chosen by the client and the colour was also his choice. However, there is another matter, if you can demonstrate that the client went to another supplier and if you can prove the above you, then your client is in breach of contract, that said, you should also be able to claim for loss of profit in addition to your material costs.
plasticpig said:
I wouldnt return the deposit. I would tell them that the best arena to settle such disputes is in the county court and if they wish to issue a claim against the company then the comapny will contest it. His reaction to this will tell you if he is serious or just trying it on.
Not a great way to run a small business though...IMHO.
Would agree that it depends entirely on your trading T+Cs - what is it stated that your deposit is for?
It does sound like there is a contract, and I can't see (without reading the T+Cs etc) why the contract shouldn't be carried out as agreed, assuming the fabric is the same. You have agreed to provide x hundred items, and have bought them as such, now the chap won't buy them?
Are you likely to be able to sell them anyway, to somebody else?
tigger1 said:
plasticpig said:
I wouldnt return the deposit. I would tell them that the best arena to settle such disputes is in the county court and if they wish to issue a claim against the company then the comapny will contest it. His reaction to this will tell you if he is serious or just trying it on.
Not a great way to run a small business though...IMHO.
A customer who messes you around is an ex customer. Give customers one chance; if they bend you over and try and screw you, they will have no problems doing it again to you.
May not be a great way to run a small business, but the chap above is now sitting on stock that he won't be able to sell at full price and will probably have to offload it at a loss. The deposit i hope will cover his loss and the extra aggro.
It's a common thing, to dispute quality when you don't need the parts. I've worked at companies where we've over ordered components and then lost the business. Then you send QA into action to return parts that are not to spec. Only thing is that the morality of doing it when you've been using those exact same parts for years with no problem for years is a little 'Hard faced'. If you expect them to want to do business with you in future you find you are screwed.
sanj27 said:
Thank you all for the responses, they are really helpful. So, I guess even if the invoices do not carry terms and conditions and non-refundable deposits appearing, general contract law would mean that the retailer could not receive a refund.
This is good news.
Thanks again.
This is good news.
Thanks again.
I agree.
Contract law in this area is such that if a contract is cancelled, the supplier is entitled to the coverage of all of their costs to date, and the profit element of the deal.
Of course the supplier would need to show how this is calculated and ask for damages - but if the customer has stuck up two fingers to the deal already then they are not likely to pay up and then the issue gets forced to court.
This is actually the reason why there is the industry standard of the deposit. That money is yours
This is simply an issue of the contract between you and your client.
Presumably your client asked for a quote before placing any order and you sending invoice out.
On any documentation (quote, invoice etc) that you send out your ought to have a phrase like "In accepting this quote you agree to our Standard Terms and Conditions"
Then you make sure that your ST&C is water tight, including the definition of deposit and the terms underwhich you hold that deposit. i.e. in the event of cancellation after receipt of order the deposit is non-refundable.
This way you're covered and if your client does indeed want to go to court you're covered and they will loose. To be fair you can prempt this by pointing out the obvious.
In terms of the deposit not covering the potential profit.. well I'm afraid that's business....
Presumably your client asked for a quote before placing any order and you sending invoice out.
On any documentation (quote, invoice etc) that you send out your ought to have a phrase like "In accepting this quote you agree to our Standard Terms and Conditions"
Then you make sure that your ST&C is water tight, including the definition of deposit and the terms underwhich you hold that deposit. i.e. in the event of cancellation after receipt of order the deposit is non-refundable.
This way you're covered and if your client does indeed want to go to court you're covered and they will loose. To be fair you can prempt this by pointing out the obvious.
In terms of the deposit not covering the potential profit.. well I'm afraid that's business....
tigger1 said:
plasticpig said:
I wouldnt return the deposit. I would tell them that the best arena to settle such disputes is in the county court and if they wish to issue a claim against the company then the comapny will contest it. His reaction to this will tell you if he is serious or just trying it on.
Not a great way to run a small business though...IMHO.
My advice might have diffrent if the OP hadnt written this:
OP said:
The client claimed the fabric was not the same, even though the very same fabric chosen was just dyed to the client’s required colour. I found out that the client had changed their mind and found another supplier, this is the reason that they did not want to continue the production.
To me this clearly indicates that the client is trying it on and is not to be trusted. The client has already destroyed the relationship by his actions. The next step is to see if he has the balls to take it to court.
I think plastipig is thinking along the right lines here. Sanj has the money so it's up to the customer to try and get it back!
Just saying that contract is subject to standard T&C is not enough IMHO. There needs to be a clear indication that T&C were reasonably available to the customer at the point of sale.
Sanj needs to look carefully at any correspondence that has passed between the parties to see how they would look in a courtroom - and then reply briefly to the customer to the effect that:- a) The customers representations to him are acknowledged. b)That he is not willing to refund the deposit on grounds that it was a non returnable deposit to cover costs in setting up a special order. c) That any variation in spec between the sample and the finished material is denied. d) That the material will be held available at the customer's disposal for his instructions on fulfilling this or any similar order for a further 28 days after which time it will be disposed of at the suppliers discretion.
The customer will be fully aware that his only option is to pursue the claim in the County Court and in case that should happen Sanj has taken the earliest opportunity to set out his position in a way that a court would regard as fair and reasonable.
Personally I would not start looking at the issues surrounding the customer buying from another supplier as it may sound as if he is being motivated by spite. Only think in those terms if a Court Summons does indeed arrive.
Forget any idea of consequential losses or loss of profits, put that down to experience.
This is simply IMHO - I am no legal expert. Just 'University of Life!!'
Just saying that contract is subject to standard T&C is not enough IMHO. There needs to be a clear indication that T&C were reasonably available to the customer at the point of sale.
Sanj needs to look carefully at any correspondence that has passed between the parties to see how they would look in a courtroom - and then reply briefly to the customer to the effect that:- a) The customers representations to him are acknowledged. b)That he is not willing to refund the deposit on grounds that it was a non returnable deposit to cover costs in setting up a special order. c) That any variation in spec between the sample and the finished material is denied. d) That the material will be held available at the customer's disposal for his instructions on fulfilling this or any similar order for a further 28 days after which time it will be disposed of at the suppliers discretion.
The customer will be fully aware that his only option is to pursue the claim in the County Court and in case that should happen Sanj has taken the earliest opportunity to set out his position in a way that a court would regard as fair and reasonable.
Personally I would not start looking at the issues surrounding the customer buying from another supplier as it may sound as if he is being motivated by spite. Only think in those terms if a Court Summons does indeed arrive.
Forget any idea of consequential losses or loss of profits, put that down to experience.
This is simply IMHO - I am no legal expert. Just 'University of Life!!'
Edited by 52classic on Tuesday 13th March 13:15
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