Court rulings demonstrate importance of communicating terms of business

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Organisations tend to understand the need to provide a copy of the terms and conditions on which they do business to suppliers or customers.  How, when and, indeed, whether they provide them in practice, however, varies widely.

In the recent case of Allen Fabrications Limited v ASD Limited, the High Court considered whether any additional steps must be taken to bring "onerous" clauses to the attention of the other party.  The European Court of Justice (ECJ) has also recently given guidance in the case of Content Services Limited v Bunderarbeitskammer relating to the provision of information to consumers.

It is well established that if a term is contained in an unsigned document (such as a set of standard terms and conditions), it will only form part of the contract if reasonable steps have been taken to bring it the other party's attention prior to the contract coming into existence.  Simply providing a copy of the standard terms may be sufficient.

However, additional steps may be required to bring any onerous or unusual provisions to the other party's attention, for example terms which limit or exclude a supplier's liability.

What constitutes an unusual or onerous term?

In Allen, the judge found that the defendant's terms were not onerous and that, although the terms had been signed, no such additional step was required to bring them to the other party's attention.  He did, however, set out some helpful comments in relation to what may constitute an onerous term.

According to the judgment, it is not always clear what amounts to an unusual or onerous term.  Caselaw has established, for example, that a provision limiting a supplier's liability may, but will not necessarily, be onerous.  The decision in Allen supports the view that courts are generally reluctant to treat such clauses as onerous automatically.

Whether or not a term is onerous will depend on the circumstances in which it is used.  In particular, regard will be had to previous dealings between the parties and whether or not they are acting in the course of their business or profession.  A term which is commonly used, especially in respect of commercial entities, for example, is less likely to be regarded as onerous.

Consumer issues

Where a party is acting outside the course of his business or profession (ie is a "consumer") and enters into a distance contract (eg an Internet purchase), he is entitled to receive certain information about the contract and the supplier, prescribed by law.

That information must be provided before the conclusion of the contract in a "durable medium", otherwise the standard seven day "cooling off period" may be extended.  Guidance published by the OFT, responsible for overseeing consumer issues in the UK, states that information provided on a website is not considered durable as it can be changed at any time after a consumer has accessed it.

In Content Services, the ECJ confirmed the OFT's opinion, stating that a durable medium "had to be functionally equivalent to a paper format".  The ECJ also found that consumers should receive the information, rather than being required to take any active steps (e.g. clicking a link) to access it.  There is a subtle distinction, which places a greater onus on the supplier.  It is worth noting that this case was referred to the ECJ from an Austrian court but the ruling is likely to apply equally in England given that the rules on distance selling in England derive from the same EU Directive that applies in Austria.

Practical points

Terms of business should be communicated to the other party as early as possible.  This may, for example, be at the time that an acknowledgement or acceptance of an order is sent.  Sending a copy of the relevant terms of business at the date of invoice is unlikely to be sufficient, since, by that point, the contract has usually been formed.

Organisations should regularly review documentation sent to customers to ensure that it includes the most up to date set of terms.  Maintaining a record of the terms which apply to customers and other parties is crucial.  Records should also be kept of any forms or letters which contain additional terms.

If any terms are particularly unusual or onerous, organisations should consider whether customers or suppliers should be required to sign a copy of the relevant terms in order to demonstrate that the unusual or onerous terms have been brought to the other party's attention.

Companies which sell goods or services via distance means (like the internet) should set out the information required to be given to consumers in an email (or other durable medium), ideally sent before the goods are delivered or the services performed.  A consumer should be able to store and reproduce (eg print) the information which has been addressed to him personally.  The information should be accessible for at least the period of the contract and should not be altered.