Onerous terms must not be ‘cunningly concealed’
A recent case has highlighted the dangers of incorporating T&C’s in B2B contracts by reference to a website.
How are terms incorporated in online agreements?
Incorporation refers to the inclusion of terms in contracts in a way that the English courts recognise them as valid. It is now common for contracts to be e-signed and for businesses to slim down their B2B contracts by referring to standard terms and conditions accessible on the website, rather than include full terms in the contract. Precedent confirms that referring to standard terms on a website will generally be sufficient to incorporate them. Typically, a person who then signs a contract is bound by these terms, regardless of whether they have been read. However, there can be pitfalls with this approach, especially where onerous or unusual clauses are contained within standard terms, as shown by the recent High Court case of Blu-Sky Solutions Limited v Be Caring Limited. The decision provides useful guidance about the correct application of the rules where a business seeks to incorporate onerous terms into a contract by reference.
The Facts of the Case
Blu-Sky Solutions (BSS) a supplier of mobile phones and telecom services, contracted with Be Caring Ltd (BCL), a social care provider, to provide a mobile package including Mobile Network Services (MNS) for 800- line connections. BSS sent BCL an online order for its services which included, at the bottom of the order, a link to a webpage entitled ‘terms and conditions – mobile’. The order stated that by signing it, BCL confirmed that it had logged into the BSS website and read, agreed, and fully understood the T&C’s. These included a clause which obliged BCL to pay an ‘administration’ fee to BSS in the event that it cancelled its order prior to connection. This amounted to £180,000 (£225 per connection). BCL did not review the T&C’s when e-signing the contract. When BCL attempted to cancel its order, BSS brought a debt claim for £180,000. BCL’s defence was that the T&Cs were not incorporated into the contract.
It was held that BSS’s standard T&C were (just about) validly incorporated by reference on the order. BCL’s argument that they thought they were only signing a ‘heads of terms’ agreement was deemed irrelevant, as they could have easily accessed the website T&C’s, but failed to do so.
However, the cancellation terms were not considered to be incorporated. This decision reinforces a well-established common law principle that a term that is burdensome or unusual is not incorporated into a contract unless it has been fairly and reasonably drawn to the attention of the customer prior to the contract being entered into. The judge referred to a ‘sliding scale’ approach so that the more onerous the clause, the more attention should be drawn to it. In this case BSS had made no attempt to explain BCL’s obligations for cancellation, despite this term being particularly onerous and out of all proportion to any estimate of BSS’s loss of profit. The judge considered this case came close to misrepresentation because the order obfuscated the nature of the proposed contract, containing dense, closely spaced text which was ‘not in any way user-friendly to any reader’, The offending clause was buried within the body of the T&C’s and was ‘cunningly concealed in the middle of a dense thicket’.
The court found that BSS’s failure to clarify BCL’s contractual obligations also meant it was not compliant with its industry’s Code of Practice.
The court therefore concluded that the cancellation fee was unenforceable, commenting that even if this clause had been incorporated it would have been considered a penal clause and thus void under English law.
Although the courts will only depart from the principle that a signing party is bound by the contract terms in extreme cases, this decision is a reminder that this does not apply to onerous terms made by reference only. Courts do not favour commercial entities that seek to bury onerous clauses within separate T&C’s and fail to give specific notice of them. If a very onerous clause is not highlighted it could amount to misrepresentation.
The judgment reinforces the need for transparency with the terms of any contract, but especially where these are burdensome and separated from the contract itself. Use of clear sub-headings, highlighting, bold text, and signposting of onerous clauses (using words such as ‘the customer’s attention is particularly drawn to clause x) will help to increase the likelihood of such terms being incorporated. It may remain preferable to include them expressly in the actual signed document or even attach the T&Cs as an appendix or schedule to the contract itself.
If you would like advice on how best to incorporate your standard T&C into contracts with your customers and/or advice on reducing the risk that any of your T&C are unenforceable, please contact FSP’s Commercial & Technology team.