Onerous terms: have they been fairly incorporated?

In the recent case of Blu-Sky Solutions Limited v Be Caring Limited, the Commercial Court had to consider a number of legal issues concerning the incorporation of onerous terms and whether such terms were void as penalties. In doing so, the judge provided a useful summary of recent case law on these topics. 

This case is a reminder that suppliers should bring onerous terms to the attention of their customers even if they are dealing with other commercial entities, particularly in situations where the terms are made available on their website (for example, via a click through customer journey) or where reference is made to terms and conditions available on the supplier’s website which are not annexed to the contract itself.

Background 

Blu-Sky Solutions Limited (a supplier of mobile phones and telecommunication services) (“Blu Sky”) contended that Be-Caring Limited (a social care provider) (“Be Caring”) had entered into a contract relating to the supply of a mobile network service by EE.  The contract involved the provision of connections for 800 mobile phones for a minimum period of 48 months.

Following signature of an order form (which referred to Blu-Sky’s standard terms which were available on Blu-Sky’s website), Be-Caring cancelled before connection which gave rise to a dispute over whether an “administration charge” which was set out in Blu-Sky’s standard terms of £225 per connection was payable (£180,000 in total).  

Incorporation of onerous terms

Despite a misunderstanding on the part of Be-Caring that it was entering into the equivalent of a heads of terms, the Judge decided that, on an objective analysis, the signed order form did create legal relations.  The Judge also concluded that the standard terms were incorporated into the contract, as they were accessible from the website and clearly identified as the terms applicable to the contract.

Turning to the administration charge in question, the Judge referred to the case of Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] which confirmed the principle that a “particularly onerous or unusual” standard term will not be incorporated into the contract, unless fairly and reasonably brought to the other party’s attention.  Previous authority has established that this issue will only arise in extreme cases when a signed contract contains all of the terms, since the court will not usually depart from the usual principle that a person who signs a document is bound by its terms. However, where the terms are set out in a separate document, there are conflicting authorities on whether signature overrides the rules of incorporation.  

In this case, the Judge favoured the approach in Bates v Post Office Ltd [2019] which decided that the rules of incorporation did apply, and so therefore did the “onerous or unusual” rule.  The Judge said that even if he was wrong about this, a ‘false binary classification’ is created if the principle only applies in extreme cases.  Although the fact that a party is prepared to sign a contract is a powerful factor against concluding that terms were not brought to their attention, the weight to be given to that factor should be fact-sensitive: 

The Judge made clear when considering the application of the “onerous or unusual” rule that the decision to not apply the rule is “likely to be very strong if there is a short form signed contract which refers to the term itself, and likely to be relatively weak if the order form is signed but the term is "buried away" in detailed T&Cs, which are incorporated as a matter of law but which are neither found in the signed contract nor provided with the signed contract.”

In this case, the Judge decided that the clause containing the administration charge was particularly onerous and was not fairly brought to the attention of Be-Caring.  The charge bore no relationship to any actual administration costs likely to be incurred (even though not uncommon in the industry) and there was no attempt to highlight this financial obligation.  Instead, it was “cunningly concealed in the middle of a dense thicket”.  Therefore, the relevant clause had not been incorporated and Blu-Sky’s claim failed.

Penalties

Although it was not necessary for the Judge to go on to consider whether the relevant clauses were void as penalty clauses, the Judge decided to provide a brief recap of the law on penalties and severance in the case of composite clauses.  Blu-Sky alleged that the clauses were conditional primary obligations, not secondary obligations, and therefore the question of penalty did not arise.  The judge disagreed, concluding that the cancellation provision was a secondary obligation in the event of a breach of the primary obligation (to enter into a contract for mobile network services).  Further, the charge was out of all proportion to any legitimate interest of Blu-Sky in the performance of the primary obligation.

Implications 

The Judge was particularly scathing in this case about the drafting and layout of the standard terms, set in closely spaced small type and with no separate clause headings.  He said that ‘it is quite clear that they are not in any way user-friendly to any reader, let alone a non-legal reader’.   This was despite his acknowledgment that the contract was between two commercial entities, highlighting the importance for all standard terms to be written in clear and concise terms with clear headings.

The Judge provided a long list of reasons why the clause had not been fairly and reasonably brought to the attention of Be-Caring in this case.  This list provides a useful reminder that the parties’ conduct will be relevant in determining this issue and suppliers should bear in mind that the court will consider:

• whether the supplier has complied with any relevant sales and marketing code of practice;
• any representations made about the cost of cancellation;
• whether the order form makes the nature of the contract clear;
• whether the order form flags the essential purpose of any terms incorporated by reference and a warning that they impose substantial obligations (including cancellation charges);
• whether the standard terms could have been included as part of the order form or at least sent with the order form;
• whether substantial financial obligations are buried in the middle of lengthy terms. 

Contributor: Emily Holdsworth

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at January 2022. Specific advice should be sought for specific cases. For more information see our terms & conditions.