Standard Terms and Conditions: Can You Rely on Them? 

Standard terms and conditions provide meat to the bones of many a commercial arrangement, but they can only fulfil that purpose if they are effectively incorporated. And even if they are incorporated as a matter of law and fact, you need to consider whether you can enforce them, as a recent case1 demonstrates.

What’s the background?

The defendant was a social care provider for vulnerable people living in their own homes. It denied that there was a binding contract with a mobile phone supplier for the supply of 800 mobile phones for at least 48 months for a monthly rental of £9,600.

Under the standard terms and conditions (STCs), purportedly incorporated into the contract, an administrative charge of £225 per connection was payable in the event of cancellation. It was not disputed that the defendant had cancelled the contract before connection. The claimant sued for £180,000.

The High Court rejected the claim. It concluded that there was a binding contract - however the claimant was not entitled to enforce what were unduly onerous clauses.

First, those clauses had been incorporated into the contract, but they had not been fairly and reasonably drawn to the defendant’s attention. The court found that the defendant had been misled, almost to the point of this coming “very close” to misrepresentation.

The STCs were not headed as such and they were unclear from the start. The judge said they amounted to more than “a page of detailed text, in closely spaced small type and with no separate clause headings. It is quite clear that they are not in any way user-friendly to any reader, let alone a non-legal reader".

Furthermore, the court ruled that even if they were properly incorporated into the contract they amounted to penal clauses and were, therefore, void. For example:

(i)         The amount of the admin charge bore no relationship to any actual administration costs incurred or likely to be incurred.

(ii)        Even if it was reasonable to read it as a disguised entitlement to a loss of profit, the amount to which the claimant is entitled under the clause was not at all proportionate to any reasonable estimate of its loss resulting from a cancellation.

Binding signatures

A further issue arose in relation to signing contracts which have the effect of binding a company, which businesses would do well to note.

In this case, due to a series of misunderstandings no one from the defendant who was involved with the contract appreciated that by signing the order form, the CEO would be committing the company to a binding contract which could not be cancelled; and which could land it with a six figure liability if it attempted to do so.    

While sympathetic to what he acknowledged as an “unfortunate position”, the court made clear this would not affect his decision in light of the facts and the law as it applies – however harsh the outcome. In the event, he ruled in their favour anyway.

Key takeaways

This case is a salutary reminder of the importance for all businesses to ensure their standard terms are clearly labelled as such and incorporated into the contract itself, if they wish to be able to enforce them. Special care must be taken in the case of potentially onerous or ‘penal’ clauses. Expert legal advice should ideally be taken.

It is also vital to understand the legal implications of signing documents on behalf of a business when negotiating new commercial relationships. A failure to understand when a legally binding contract may arise will not, of itself, amount to a good enough argument in support of your case.

1Blu-Sky Solutions Ltd v Be Caring Ltd [2021] EWHC 2619 

If you would like us to cover an issue in the next NGM Tax Law Newsletter, we would be pleased to hear from you