Onerous clauses in standard terms and conditions

Background

Blu-Sky Solutions Ltd (“Blu-Sky”) sued for cancellation charges under a contract relating to the supply of a mobile network service following the cancellation of an order form by Be Caring Ltd (“BCL”). BCL had initially signed an order form for the provision of connections for 800 mobile phones for a minimum period of 48 months but cancelled it shortly after and prior to any commencement of work. It should be noted that the signed order form was subject to and deemed to incorporate Blu-Sky’s standard terms and conditions (“Ts&Cs”) available on their website.

It is understood that although BCL signed the order form, they neither reviewed the terms nor accessed the Ts&Cs and therefore wasn’t aware of the cancellation charges in clause 4.6 of the Ts&Cs which stated:

“4.6 In the event that a customer cancels an order prior to connection following a purchase order is sent, disconnects a connections prior to the expiry of the minimum term (without consent from Blu-Sky-Solutions Ltd) or a connection is downward migrated during the minimum term without written consent from Blu-Sky-Solutions Ltd), then Blu-Sky-Solutions Ltd shall be entitled to charge the customer an administration charge of £225 per connection. This £225 will also be applied to each connection if the customer upgrades with another supplier but on the same mobile network within the minimum contractual term agreed. For the avoidance of doubt if you are a business customer there is no 14 day cooling off period unlike consumer regulations”

Blu-Sky commenced proceedings following failure of payment of the said cancellation fees.

Key issues

The following issues were considered:

A)  did the signed order form create legal relations between the parties?

B)  were the Ts&Cs incorporated into the order form?

C)  were the clauses in the Ts&Cs dealing with charges sufficiently incorporated in the order form as allegedly unusual and onerous?

Judgment

On the first two issues, the court ruled against BCL’s claims and ruled that the signed order form did in fact create legal relations between the parties. Moreover, it was ruled that the Ts&Cs were indeed incorporated into the order form. Although BCL did not access the Ts&Cs, it was held that they could have accessed the Ts&Cs on the website when they signed the order form.

However, on the third point, the court agreed with BCL that the onerous clauses were not incorporated in the order form. In his judgment, HHJ Stephen Davies referred to the principle summarised in Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA that “even if A knows that there are standard conditions provided as part of B’s tender, a condition which is “particularly onerous or unusual” will not be incorporated into the contract, unless it has been fairly and reasonably brought to A’s attention.”

The court held that the onerous clauses within the Ts&Cs were not fairly and reasonably brought to BCL’s attention as:

1)      Blu-Sky made no attempt to comply with the relevant industry code of practice, in this case, the Code of Practice for the sales and marketing of subscriptions to mobile network;

2)      BCL had no reason to expect and Blu-Sky did not disclose the fact that BCL would be exposed to such substantial contractual liability prior to receiving the order form;

3)      the order form “obfuscated” the nature of the contract;

4)      although the Ts&Cs were expressly referred within the order form, they neither explain the purpose nor warn of the hefty obligations being imposed for cancellation;

5)      it would’ve been feasible for the Ts&Cs to be part of the order form in a clear manner; and

6)      Blu-Sky made no attempt to flag the onerous clauses and “cunningly concealed” them in the “middle of a dense thicket which none but the most dedicated could have been expected to discover".

The court further held that even if the Ts&Cs were incorporated in the contract, it would’ve been void as the charges for cancellation bore no relationship to any administration costs incurred or likely to be incurred i.e. they were a penalty. In addition, the judge ruled against Blu-Sky’s claim that such charges are common within the industry because the fact that such charges are common does not make it not onerous.

Key lessons

The court judgment in this case could serve as guidance for commercial parties to consider when incorporating onerous standard terms and conditions by reference into a contract. The judgment gives clear emphasis on transparency and therefore careful consideration should be given to the drafting itself, user-friendliness of the terms and highlighting/ having clause headings on potentially onerous provisions.

The party seeking to incorporate its standard terms should also strive to ensure that any onerous liability terms have been flagged prior to signature and perhaps as part of the commercial discussions and not buried elsewhere. This would help ensure that the commercial parties are well aware of what they are agreeing to and avoid potential conflicts which could sever relationships.