Hidden "onerous" term not included into B2B contract

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Commercial Article

05 November, 2021

In Blu-Sky Solutions Ltd v Be Caring Ltd [2021] EWHC 2619 a mobile phone supplier was not entitled to enforce a cancellation clause in its standard terms, since it was an overly onerous term which had not been fairly and reasonably drawn to the purchaser's attention before it had signed an order form for 800 mobile phone connections with a monthly fee, and then cancelled it prior to connection to the network. The clause had been hidden within detailed terms and conditions, and a cancellation charge of £225 per connection was not in proportion to any reasonable estimate of its loss.

Background

Blu-Sky in this matter sought to enforce a cancellation fee of £180,000 plus VAT arising under a telecoms contract against Be Caring. The contract involved the provision of connections for 800 mobile phones for a minimum rental period. The mobile network service was to be supplied by a third-party network operator, who Be Caring were to enter into a subsequent contract with. Blu-Sky provided its order form to Be Caring and at the bottom of the form was a statement that said, 'all orders and contracts were subject to and incorporated Blu-Sky's standard terms and conditions, and that by signing the document, the signer agreed that they had logged on to Blu-Sky's website and had read, agreed and understood the standard terms and conditions'.

Be Caring's business support manager forward the order form to its chief executive who subsequently signed the form. They did not however, log onto Blu-Sky's website to read the standard terms and conditions and they did not return the network contract with the order form and they subsequently informed Blu-Sky that they were cancelling the contract to ensure they understood the network contract before signing it. Be caring, therefore, cancelled its order prior to connection and did not enter into the contract with the network operator.

Blu-Sky returned to Be Caring informing them that the contract had been concluded due to the signature on the order form and that the contract incorporated its standard terms and conditions inclusive of clause 4.6 which stated that it was entitled to a £225 administration charge per connection in the event of cancellation before connection to the network. Blu-Sky therefore invoiced Be Caring for £180,000 plus VAT which Be Caring refused to pay.

Outcome

Be Caring made several key arguments which were as follows:

  • the standard terms and conditions had not been incorporated into any contract;
  • clauses 4.6 and 4.8 as "unusual or onerous" terms, were penalty clauses and therefore void;
  • BluSky had not suffered any loss due to the cancellation of its order; and
  • Be Caring's signatory believed she was signing the equivalent of a heads of terms and not an "immediately binding agreement".

The judge dismissed as irrelevant as a matter of law Be Caring's argument that is signatory believed she was signing the equivalent of a heads of terms, where there was no evidence that this belief had been communicated to Blu-Sky.

It was also held that the standard terms and conditions had been incorporated into the contract because the defendant could have accessed these via Blue-Sky's website when e-signing.

The judge, however, decided that clauses 4.6 and 4.8 of the standard terms and conditions were penal. There is a well-established principle of common law that, even if a person signing a contract knew that standard conditions were provided as part of the tender, a condition which was particularly onerous or unusual would not be incorporated unless it had fairly and reasonably been brought to their attention. Clause 4.6 was particularly onerous since the amount of the administration charge bore no relationship to any administration costs incurred, it was out of proportion to any reasonable estimate of Blu-Sky's loss resulting from a cancellation, and the fact that other independent dealers sought to protect their profit by inserting such a clause carried little weight. Moreover, clause 4.6 had not been fairly and reasonably brought to Be Caring's attention, taking into account factors including that it had not been told, prior to receiving the order form, of its potential exposure to a substantial contractual liability if it decided not to enter the contract. Essentially clause 4.6 had been buried within section 4 with the same reasons applying to clause 4.8.

Blu-Sky's claim therefore failed and was dismissed by the Court. The judge held that the clauses had not been incorporated into the contract since they were "unduly onerous" and had not been "fairly and reasonably drawn to Be Caring's attention".

This decision reinforces the importance of drawing a customer's attention to any onerous terms in the standard terms and conditions, even where the contractual relationship is between commercial entities and there has been ample opportunity for the customer to access and consider the standard terms and conditions. If a particularly onerous clause is not highlighted, this could even amount to misrepresentation.

For more information contact John Pickervance in our Commercial department via email or phone on 0333 207 1134. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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