Using standard T&Cs
Standard T&Cs are great for efficiency and certainty, and are generally cheaper than negotiating on a contract-by-contract basis. But are they enforceable? James Corlett, partner and head of the Commercial team with the Group’s specialist corporate and commercial practice Beyond Corporate, explains.
A recent case in the High Court has determined that whilst the claimant’s standard terms were incorporated by reference into a signed contract, a term that required the defendant to pay cancellation fees was not incorporated as it was overly onerous, and the claimant had not done enough to draw the defendant’s attention to it.
The law in relation to standard terms
The law is clear that where there are standard terms, a condition which is especially onerous or unusual will not be incorporated into the contract unless the party relying on it has reasonably brought it to the other party’s attention.
This case is interest to businesses of all sizes as it suggests that there is a distinction between including an onerous term in the signed contract itself on the one-hand and just including it in standard terms which are incorporated into the main agreement by reference on the other.
The term is likely to have been adequately brought to the signing party’s notice if it is contained within the signed contract in all but extreme cases; however, this approach does not apply where such a term is incorporated by standard (unsigned) terms.
A term buried in standard T&Cs
In this case that the defendant signed a purchase order form acknowledging that it had accessed and read the standard terms and conditions on the claimant’s website, although it hadn’t done so.
Despite signing the order form the defendant later told the claimant that it did not wish to continue with the order. The claimant claimed that it was entitled to an administration charge of £180,000 (£225 for each of the 800 connections) based on a term buried in its standard T&Cs.
The defendant denied that there was a binding contract between the parties. Alternatively, if there were a contract because of the defendant having signed the order form, it claimed that the offending clause was not incorporated due to its unusual and onerous nature, or was a penalty clause and was void.
The offending clause was “cunningly concealed”
The judge in this case found that there was a contract, and the T&Cs were incorporated into the contract, but the offending clause was not incorporated and, in any event, was void due to its penal nature.
The judge also commented that the offending clause was “cunningly concealed … which none but the most dedicated could have been expected to discover …”
In the circumstances, he was satisfied that it had not been incorporated into the contract.
One of the key elements of the decision was that the “administration charge” of £180,000 bore no relationship to any actual administration costs or reasonable estimate of its loss of profits incurred, or likely to be incurred, by the claimant. It was determined that this was not a ‘primary’ obligation of the defendant under the contract, but only arose by virtue of a breach.
Clauses within standard terms which impose onerous obligations
How might this affect your business? This decision provides a stark reminder that clauses within standard terms which impose onerous obligations should be made obvious to the counter-party prior to entering into contract. This judgement means that it is even more important where the standard terms are incorporated by reference, rather than being contained in the signed contract itself.
Interestingly, it was deemed irrelevant that such clauses are ‘standard’ in the industry.
The court’s decision raises the question of whether consumer law principles of fairness may start to be extended to business-to-business contracts.
Review your standard terms and conditions
Businesses should review their standard terms and conditions and their contracting processes to establish whether they are at risk of being unable to enforce their standard terms and, if there is any doubt, take action to remedy the risks.