Are your business’s terms and conditions enforceable?
Chris Hawkes explains why highlighting onerous terms is important and how to make sure certain terms can be enforced.
It is a common practice for a business to issue purchase orders that contain a reference to a website where the customer can find the business’ terms and conditions. The general understanding is that it is the customer’s responsibility to read the terms and conditions. However if they contain any onerous terms, such as penal cancellation charges, and the business in question is deemed not to have given sufficient notice of those terms to its customer, then the court may find that the terms in question cannot be enforced if challenged.
This is exactly what happened in the case of Blu Sky Solutions Ltd v Be Caring Ltd  EWHC 2619 (Comm).
A case of unenforceable cancellation charges
Having purchased 800 mobile phones and associated telecommunications services from Blu Sky, Be Caring sought to cancel the contract early. The contract was said to incorporate the supplier’s standard terms and conditions and included a link to a website on which the same were recorded. Be Caring did not follow that link.
Following cancellation Blu Sky issued an invoice for £180,000 representing an administration charge of £225/unit which, according to the standard terms, the supplier was entitled to charge in the event of early cancellation. Be Caring challenged the enforceability of that clause.
What did the judge decide?
Both Blu Sky and Be Caring agreed that, because the standard terms and conditions (STCs) were referred to rather than contained in the order form, the key questions before the judge, HHJ Stephen Davies, were:
- Were the terms and conditions sufficiently brought to Be Caring’s attention for them to be incorporated into the contract?
- Were the relevant terms and conditions that had been incorporated into the contract unusual and onerous?
The judge found that Blu Sky had not sufficiently highlighted the onerous terms and were therefore at fault. He said that the relevant clauses were particularly onerous or unusual because:
- the sum of the “administration charge” bore no relation to any administration costs incurred or likely to be incurred; and
- the sum under the relevant clause was out of all proportion to any reasonable pre-estimate of Blu Sky’s loss resulting from cancellation. Additionally, the judge emphasised that even if such clauses were used by others in the industry, that did not mean that they were not onerous.
How did Blu Sky fail to highlight onerous terms in its terms and conditions?
The judge said that Blu Sky had not fairly and reasonably brought the relevant clauses to Be Caring’s attention, because:
- prior to receiving the order form, Blu Sky did not tell Be Caring that it would be exposed to a very substantial liability should it decide to cancel its order;
- the order form obfuscated the nature of the contract;
- although the order form did refer to Blu Sky’s terms and conditions, it did not explain their purpose or give any warning that they imposed potentially substantial obligations;
- it would have been perfectly feasible to include the terms and conditions as part of the order form;
- Blu Sky had made no attempt to highlight the relevant clauses; instead, they were “cunningly concealed in the middle of a dense thicket which none but the most dedicated could have been expected to discover”; and
- Blu Sky had made no real attempt to comply with the Code of Practice for the sales and marketing of subscriptions to mobile networks.
As such, the judge concluded that the clause under which Blu Sky purported to be entitled to its cancellation fee was not incorporated into the contract and its claim for damages failed.
What steps can businesses take to make sure its terms and condition are enforceable?
Businesses need to consider their terms and conditions and how they are communicated to counterparties, even when they are dealing with another commercial entity. Sensible steps to take include:
- attaching a copy of the relevant terms and conditions to the contract whenever possible; and
- bringing potentially onerous provisions to the counterparty’s attention (e.g., by sign-posting the relevant clause to the attention of the counterparty in the contract itself).
A failure to do so, could have dire consequences.
Contact a commercial dispute solicitor
If you require advice on the effect of contractual terms or are involved in a dispute over the enforcement of such terms, please contact Chris Hawkes or Cathy Harris for further advice and representation.