A warning on incorporating standard terms by reference

In Blue-Sky Solutions Ltd v Be Caring Ltd [2021] EWHC 2619 (Comm), the High Court reminded parties that where they are seeking to incorporate their own standard terms by reference, particularly burdensome clauses (even if they are standard across the industry) should be drawn to the attention of the other party.

Background

The Defendant ordered 800 mobile phone connections from the Claimant, which was acting as an intermediary for a mobile network company. The Claimant’s standard terms and conditions were incorporated into its order form by reference and published separately on its website (the STCs).

A particular clause in the STCs allowed the Claimant to recover a significant “administration charge” of £225 per mobile phone connection in the event that the customer cancelled the contract before the phones were connected (the Administration Charge). Before any connections were established, the Defendant cancelled its order. The Claimant brought a claim to recover £180,000, being 800 Administration Charges.

Decision

On the principles of incorporation, a term included in a signed contract is considered to “have been adequately brought to the signing party’s notice in all but extreme cases”. Where the signed contract incorporates terms and conditions by reference, with one of conditions being particularly onerous or unusual, the issue is whether the unduly onerous clause was sufficiently brought to the attention of the signing party.

An onerous clause has to be fairly and reasonably brought to the other party’s attention. This principle is derived from the famous judgment in Thornton v Shoe Lane Parking Limited [1971] 2 QB 163, in which Lord Denning stated that sufficient notice for a particularly onerous clause “would need to be printed in red ink with a red hand pointing to it – or something equally startling.” Davies HHJ held that in this case, the clause in question was particularly onerous for three reasons:

1. The size of the Administration Charge bore no relationship to the true administration costs incurred or likely to be incurred.
2. Even if it were a disguised entitlement to a loss of profit, the amount was “out of all proportion to any reasonable estimate of its loss resulting from a cancellation” (the actual loss was less than 13% of the claim).
3. Even though such clauses may not be unusual in the industry, this fact in itself did not make the clause less onerous.

Davies HHJ found that the clause in question was not fairly and reasonably brought to the Defendant’s attention for several reasons, including that:

1. The order form “positively obfuscated the nature of the contract”.
2. No notice was given to the customer of any substantial financial obligations being placed upon them.
3. It would have been feasible to include the STCs as part of the order form.

Whilst the judge accepted that the STCs “were reasonably clearly brought to the defendant’s attention in the order form, the offending clause itself was not and was cunningly concealed in the middle of a dense thicket.” As a result, the clauses relied upon by the Claimant had not been incorporated into the contract, on the basis that they were unduly onerous and had not been fairly and reasonably drawn to the Defendant’s attention.

Key takeaways

When a party incorporates standard terms and conditions by reference, it is important to consider whether the party has sufficiently drawn the other parties’ attention to any conditions that are particularly onerous.

The fact that a particular clause is not unusual within the industry does not of itself mean that it is not onerous.

The author would like to thank Polina Maloshchinskaia for her assistance in preparing this post.