The High Court has recently considered a dispute over the incorporation of terms into contracts.  It ruled whether the terms had been incorporated generally, about “onerous” terms specifically, as well as considering if the onerous term was an unlawful penalty anyway. The judgment is of interest to lawyers drafting standard terms and conditions and to those creating customer sign-up journeys on websites.  It arose in the context of a business to business transaction but would also be relevant to a business to consumer arrangement.

The case related to the provision of a mobile network service.  The customer, a provider of social care services, signed an order form for mobile phone services which sought to incorporate terms by reference to the supplier’s website.  It was common ground that the defendant cancelled before connection and the claimant argued that it was entitled to £180,000, which was a £225 administration charge for each of 800 connections. The customer contested the charge, saying that the terms of the contract were not incorporated into the contract generally, but in any event the term was onerous and particular attention should have been drawn to it.  It also argued the term was a penalty.

The judge disagreed with the customer that the terms had not been validly incorporated into the contract and said that the terms and conditions were (just about) sufficiently incorporated by reference to the supplier’s website. 

However, he did agree that the provision for the administration charge was onerous and should therefore have been brought to the customer’s attention.  Not only had this not happened, it had been “positively concealed”. He also made the point that even though such clauses may not be unusual in the industry, the fact that other independent dealers seek to protect their profit by inserting such clauses, which were nonetheless particularly onerous in his judgment, could not hold much weight.

The relevant clause in this case would allow the claimant to obtain compensation out of all proportion to its actual loss and he concluded it would be unconscionable to allow the claimant to recover compensation in such circumstances. Even if it was reasonable to read it as a disguised entitlement to a loss of profit, the amount to which the claimant was entitled under the clause was out of all proportion to any reasonable estimate of its loss resulting from a cancellation.

In addition, he considered whether the administration charge was a penalty.  The obligation to pay the administration charge was in reality no such thing but in fact a hugely inflated compensation for loss of profit.

The key learnings from the case were that the claimant’s standard terms and conditions were ‘not in any way user-friendly to any reader, let alone a non-legal reader’.  The drafting was poor, and the judge  highlighted a lack of separate clause headings and the fact that important clauses were buried within other clauses. It is therefore important that when lawyers are drafting standard terms and customer journeys that they ensure that the terms are validly incorporated into the process and that any onerous terms are properly brought to the customer’s attention. This is particularly important when dealing with consumers, but as this case illustrates, when you are dealing with other businesses too.  It is also worth noting the point that just because your competitors are “getting away” with something, doesn’t mean that you will!