A party could not rely on a contractual term where it was both "onerous" and "buried" within standard terms that were incorporated by reference

The High Court has held that, while the claimant's standard terms were incorporated by reference into a signed contract, a term that required the defendant to pay cancellation fees was not incorporated as it was onerous and the claimant had not done enough to draw the defendant's attention to it: Blu-Sky Solutions Ltd v Be Caring Ltd [2021] EWHC 2619 (Comm).

Here, the defendant, by signing a purchase order form, acknowledged that it had accessed and read the standard terms and conditions on the claimant's website, even though in reality it had done neither.

It is settled law 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 to the other party's attention. The present case considers the extent to which that principle applies where the standard terms are incorporated under a signed contract, and how it fits in with the usual principle that a person who signs a document is bound by its terms (including those incorporated by reference) whether or not they have read them.

The present case suggests there is a distinction between including an onerous term in the signed contract itself, and merely including it in standard terms which are incorporated by reference. In the former case, the term is likely to have been adequately brought to the signing party’s notice in all but extreme cases; in the latter, the same restrictive approach does not apply.

Here the judge commented that the offending clause was "cunningly concealed in the middle of a dense thicket which none but the most dedicated could have been expected to discover and extricate…" In the circumstances, he was satisfied that it had not been incorporated into the contract.

This decision serves as a reminder that clauses within standard terms which impose burdensome obligations should be made obvious to the counter-party prior to contracting. As the decision shows, that will be even more important where the standard terms are incorporated by reference, rather than being contained in the signed contract itself.

Background

The claimant, Blu-Sky Solutions Limited, entered negotiations with the defendant, Be Caring Limited, to provide connections for the defendant's 800 mobile phones under a mobile network service supplied by EE. The defendant signed an order form but cancelled the order shortly afterwards, before the connections had taken place.

The claimant started proceedings alleging that it was entitled to an administration charge of £180,000 (£225 for each of the 800 connections) pursuant to the following clause in its standard terms and conditions (STCs):

"4.6 In the event that a customer cancels an order prior to connection following a purchase order is sent, .. then Blu-Sky-Solutions Ltd shall be entitled to charge the customer an administration charge of £225 per connection…"

The defendant denied that there was a binding contract between the parties. Alternatively, if there were a contract as a result of the defendant having signed the order form, it claimed that clause 4.6 was not incorporated due to its unusual and onerous nature, or was a penalty clause and thus void in any event.

Decision

The High Court (HHJ Stephen Davies sitting as a High Court judge) found that there was a contract and the STC were incorporated into the contract, but clause 4.6 was not incorporated and, in any event, was void due to its penal nature.

Was there a binding contract?

The defendant's case was that signing and returning the order form was simply a step along the way to a completed contract with EE, and did not result in a binding contract with the claimant. The claimant’s position was the defendant’s case fundamentally misunderstood the process: the defendant was to enter, first, a contract with the claimant as an independent dealer and, second, with EE for the provision of a mobile network service.

The judge held that, by signing the order form the defendant was - on an objective analysis - accepting that it had entered into a contract with the claimant. The fact that the defendant did not fully understand the difference between the roles of the claimant and EE, or that there would be these two separate and distinct contracts, did not affect the position.

Were the STCs incorporated?

It was common ground that where terms and conditions are not contained in a signed contract but are referred to in it, the question is whether they were sufficiently brought to the attention of the counterparty.

The judge referred to Impala Warehousing and Logistics (Shanghai) Co Ltd v Wanxiang Resources (Singapore) PTE Ltd [2015] EWHC 25 (Comm) which showed that reference in a contractual document to a website may well be sufficient to incorporate the standard terms found on that website.

He found that, in this case, the STCs were incorporated into the contract because: (i) they were accessible from the claimant's website by navigating to and clicking on the "terms and conditions - mobile" link; and (ii) it would have been reasonably clear to the defendant, had it accessed the website, that the relevant terms relating to mobile phones (as opposed a separate set of terms relating to landlines) were applicable to the present contract.

Was clause 4.6 incorporated?

The judge referred to the established principle that, even if a party knows there are standard conditions that apply, a condition which is “particularly onerous or unusual” will not be incorporated unless it has been fairly and reasonably brought to their attention.

The claimant submitted that it was not clear whether that principle applied if the standard conditions were incorporated under a signed contract. It argued that, in any event, it was only in extreme cases that the court would depart from the usual rule that a person who signs a document is bound by its terms, including those incorporated by reference, whether they have read them or not (relying on Do-Buy 925 Ltd v National Westminster Bank plc [2010] EWHC 2862 (QB)). The claimant argued that the need for an "extreme case" applied only where the relevant clause was in the signed contract itself, and not where it was incorporated by reference.

The judge held that, in agreement with the approach in Bates v Post Office (No 3) [2019] EWHC 606 (QB), the restrictive approach taken in Do-Buy did not apply to a signed contract that simply incorporated an onerous term by reference, rather than including it in the contract itself.

The judge held that clause 4.6 was particularly onerous because: the amount of the "administration charge" of £180,000 bore no relationship to any actual administration costs or reasonable estimate of its loss of profits incurred or likely to be incurred by the claimant; and, while clauses such as 4.6 might not be unusual in the industry, the fact that other independent dealers sought to protect their profit by inserting such clauses could not hold much weight.

The judge also found that the clause had not been fairly or reasonably brought to the defendant's attention because:

• The claimant made no real attempt to comply with the Code of Practice for the sales and marketing of subscriptions to mobile networks, and in particular the need to ensure that the defendant understood that they were entering into a contract and the key features of that contract.
• 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.
• The order form did not make clear and, to the contrary "positively obfuscated" the nature of the contract which the claimant was putting forward to the defendant. Therefore it was not surprising that the defendant was misled into believing that it was simply signing an order form as a precursor to entering into a contract with EE rather than entering into a contract with the claimant which made it liable to pay a very substantial cancellation charge if it did not do so.
• Although 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 claimant if it did not proceed with the contract or cancelled it early: it would have been perfectly feasible to include the STCs as part of the order form with a prominent heading explaining that they set out the defendant's obligations to the claimant in relation to the network services contract to be entered into with the network operator and imposed financial penalties on it.

The judge concluded that the offending clause itself was "cunningly concealed in the middle of a dense thicket" which none but the most dedicated could have been expected to discover and extricate. He held that this case did not fall foul of the restrictive approach suggested in Do-Buy.

Was clause 4.6 a penalty clause?

The judge held that clause 4.6 came within the definition of a penalty clause as set out by the Supreme Court in Cavendish Square Holding BV v Talal El Makdessi [2015] UKSC 67 (considered here), namely a secondary obligation that was out of all proportion to the claimant's legitimate interest in enforcing the defendant's obligations under the contract.

The judge, in particular, rejected the claimant's submission that the obligation to pay £225 per connection under clause 4.6 was a primary obligation under the contract. He was satisfied that it was a secondary obligation, that is, it only arose on breach of a primary obligation, namely to enter into the contract for mobile services.