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A cautionary tale on the perils of burying onerous terms in your T&Cs

The recent judgment in Blu-Sky Solutions Ltd v Be Caring Ltd [2021] EWHC 2619 (Comm) echoes Lord Denning's well-known statement "some clauses […] would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held sufficient". 

In Blu-Sky Solutions Ltd v Be Caring Ltd, the High Court held that a requirement to pay cancellation fees embedded within a supplier's standard Terms and Conditions which were incorporated by reference were not enforceable as the supplier had not done enough to draw the customer's attention to that onerous term. 

Alex Sharples, Senior Associate in our Commercial Litigation Practice and Rose Wakefield, Trainee Solicitor in our Commercial Litigation Practice, consider the judgment and its implications below. 

Background

Blu-Sky Solutions Ltd (the Claimant), a supplier of mobile phones and telecommunications services, brought a claim for cancellation fees of £180,000 plus VAT which it claimed were owned by the Defendant, Be Caring Ltd (the Defendant), a social care provider.  

The claim related to a business-to-business contract for the supply of a mobile network service by EE and in particular for the provision of connections for 800 mobile phones for a minimum period of 48 months for a monthly rental of £9,600. The contract incorporated the Claimant's standard terms and conditions (the STCs) for mobile services which were navigable via a link within the contract to the Claimant's website. 

The customer, via an e-signing system, signed the purchase order which contained these words:

"by signing this document I agree I have logged on to the [supplier's] website at [weblink], have read agree and fully understand all terms and conditions regarding the contract and the policy protection scheme & free trial (*where applicable) and am bound by the same." 

Within the STCs was an "administration charge" in the event of cancellation which provided for a charge of £225 per connection (the Clause). The Defendant cancelled the contract before connection had taken place and the Claimant duly claimed £180,000, being a £225 administration charge per 800 connections.

Denying the claim, the Defendant asserted there was no binding contract between the parties and denied the incorporation of the Claimant's STCs on the basis that the Clause was onerous or unusual and in addition, that the Clause was a penalty clause and therefore void. The Defendant also put the Claimant to proof as to loss suffered in the cancellation of its order.

Judgment

In deciding the case, HHJ Davies referred to the decision of Tear J in Impala Warehousing and Logistics (Shanghai) Co. Ltd v Wanxiang Resources (Singapore) PTE ltd [2015] EWHC 25 (Comm) in which it was held that standard terms and conditions can be incorporated into a contract by reference to the company's website containing such terms on the contract itself. In addition, where such a website contains more than one reference to a set of terms and conditions, the party relying on them must be those which are clearly applicable to the contract being entered into.

In this case, HHJ Davies found the STCs were accessible as they were easily found by clicking on the T&Cs mobile link, the question before the Judge however was whether the terms were easily identifiable to the contract which the Defendant had entered into by signing the order form.

HHJ Davies concluded that whilst the Claimant did have two sets of terms on their website, relating to mobiles and landlines, it was sufficient for the purposes of this claim and contract that the Defendant, on a quick look over the mobile T&Cs, would have no issue in determining this was the correct set of STCs applicable to their contract (referencing the various sub-headings in the T&Cs which referred to connections in particular).

HHJ Davies then considered the settled common law principle, as summarised in Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1871 which provides that where there are standard terms, a condition which is particularly onerous or unusual will not be incorporated into the contract unless the party relying on it has fairly and reasonably brought it the other party's attention. 

In particular HHJ Davies reasoned that there exists a sliding scale for such onerous terms, stating that where the clause is more outlandish and burdensome, the party intending to rely on such term should give greater notice to the other party of the existence of the onerous term.

Ultimately, HHJ Davies found the Clause was onerous and thus unenforceable for the following reasons:

  1. As regards to quantifying the loss incurred, HHJ Davies stated the amount of the "administration charge" had no relationship to any actual administration costs incurred or likely to be incurred;
  2. Further still, HHJ Davies considered it was reasonable to consider the "administration charge" as an entitlement to loss of profit, the amount to which the Claimant was seeking under the Clause was held to be disproportionate to any reasonable estimate of its loss resulting from the cancellation; and
  3. Reference to other independent suppliers in the industry who also seek to insert similar clauses in their T&Cs was not given any weight for factoring into the judgment. HHJ Davies considered similar clauses would likely be deemed onerous.

HHJ Davies further determined that the Clause had not been fairly and reasonably brought to the Defendant's attention for the following reasons:

  1. Prior to receiving the order form, the Defendant was not told and had no reason to expect that it would be exposed to a very substantial contractual liability from the Claimant should it decide not to enter into the contract;
  2. Whilst the order form did make express and reasonably clear reference to the Claimant's STCs, it did not explain their essential purpose or give any warning that they imposed potentially substantial obligations on the Defendant in favour of the Claimants in the event it did not proceed with the contract or cancelled early;
  3. It would have been perfectly feasible to include the STCs as part of the order form, which would have had the benefit of illustrating that they were voluminous, complex and therefore influenced the defendant to read them with care before signing the order form; and
  4. At the very least, the STCs should have been sent with the order, with prominent headings drawing the Defendant to specific obligations, such as the imposition of financial penalties in the event the contract did not proceed or was terminated early.

HHJ Davies stated "whilst I accept the STCs were reasonably clearly brought to the Defendant's attention in the order form, the offending clause itself was not and was cunningly concealed in the middle of a dense thicket which none but the most dedicated could have been expected to discover and extricate". 

As to whether the Clause was deemed void, HHJ Davies held that the fee imposed greatly outweighed any loss that may be suffered by the Claimant in the event the Defendant did not enter into the contract or it was terminated early, and to that extent the Clause was held disproportionate. HHJ Davies also considered it would, on the facts of the case, be unconscionable to allow the Claimant to recover such fees given that such Clause, as above, was buried within the STCs and not sufficiently brought to the Defendant's attention. 

Commentary

Whilst the Claimant had successfully incorporated the STCs by directing the Defendant to an accessible link to access the STCs, ultimately the Claimant had not gone far enough to bring to the Defendant's attention the significant financial implications arising from termination that may have deterred the Defendant from entering into the Contract in the first place. 

The case serves as a timely reminder that where T&Cs are referred to via a "tick box" of a "website link" then terms deemed particularly burdensome, such as the likes of cancellation fees, should be made clearly visible and obvious to customers for example by putting them in bold words / clauses to draw the customer to the terms. 

In this case, HHJ Davies suggested sending out the T&Cs with the contract and flagging onerous terms separately to the customer. Note that HHJ Davies also considered there was a "sliding scale" of onerous terms; the more onerous the term the greater attention that is needed.

In addition, suppliers should proceed with caution as regards to the amount of financial compensation claimed under any particular clause; consider whether the financial implications imposed as a result of say, early termination, would be deemed justifiable against the actual loss suffered. In this case, the £180,000 claimed greatly exceeded the actual loss the Claimant would have suffered as a result of the cancelled contract such that the sums were not recoverable.

It is clear that there is a balance to be struck between ensuring that clauses are incorporated efficiently (such as through the use of weblinks) and meeting an obligation to effectively bring onerous terms to a customer's attention.

 
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