Onerous Contract Terms Must be Brought to Attention to be Enforceable
Parties to contracts generally are bound by terms that they have signed up to. However, a recent case shows that onerous or unusual terms must be brought to the other party's attention if they are to be incorporated by reference.
What Happened in This Case?
In the case of Blu-Sky Solutions Ltd v Be Caring Ltd, a telecoms supplier contacted a customer offering to provide services. The supplier sent an electronic order form to the customer. This referred to all orders and contracts being subject to the supplier's standard terms and conditions, found on their website. The customer signed the order form, but they later wanted to back out.
Pursuant to their terms and conditions, the supplier sought to enforce a cancellation fee, which the customer claimed was exorbitant and was therefore an unenforceable penalty.
The customer claimed that the supplier's standard terms and conditions had contained unusual and onerous terms, and these should have been fairly and reasonably brought to their attention, but were not.
The High Court sided with the customer. When the customer had signed the order form, this created legal relations between the parties and the supplier's standard terms and conditions had been incorporated by reference. However, the clauses at issue were unduly onerous and should have been fairly and reasonably drawn to the customer's attention, but were not. They were therefore not properly incorporated into the contract.
The High Court also agreed with the customer that, had those clauses even been incorporated, they would have been penalty clauses and therefore void.
What Does This Ruling Mean for You?
This case does not create new law, but shows the importance of properly incorporating terms and conditions into a contract. They are generally incorporated by reference if they are referred to at a working web link. However, this case shows the need for unusual terms to be specifically drawn to the other party's attention in order for those to be incorporated.
In addition, the court would have found the clauses in this case to have been unenforceable penalties. in the last few years, parties have had greater latitude to set sums that are payable if the other party breaches. It used to be the case that a pre-agreed amount of damages had to be a genuine pre-estimate of loss in order to be upheld rather than an unenforceable penalty. Since a Supreme Court case in 2015, the test is now whether it is unconscionable, exorbitant, extravagant or out of all proportion to the interest being protected. Despite this wider scope to set a pre-determined amount to be paid, this case shows that it is still possible to fall foul of that test.