“Reasonableness” of terms and conditions
“Reasonableness” of terms and conditions
Many businesses operate using standard terms and conditions (T&Cs) usually either sent to their clients or displayed on their website. On occasions, as shown in the case below, one party may seek to incorporate a term that largely benefits itself and then rely upon it when it becomes opportune to do so. The law already provides that the party seeking to enforce a somewhat onerous term must show that it had been brought fairly to the attention of the other party prior to contract forming. More commonly known as “providing notice”, without it many struggle to substantiate a claim that another party had seen and agreed to be bound by that onerous term.
A test exists in law to assess whether a term is “reasonable”. Found in the Unfair Contract Terms Act 1977 (which applies when one is seeking to limit liability) the courts determine whether the term is in fact reasonable. Historically, the more similar parties are in their size, revenue or industry has meant the parties are somewhat equal and thus terms within their contract are likely to be reasonable.
The recent case of Phoenix Interior Design Ltd (Phoenix) v Henley Homes Plc (HH Plc)  EWHC 1573 (QB) indicates however that the courts show an appetite for intervening where they believe a term is unreasonable in spite of an equality of bargaining power between the parties.
Phoenix (a design company) provided hotel furniture to HH Plc (a property development group) and had done so previously on a number of projects. On this project, HH Plc specified they wanted the hotel be high end with a “five star feel” but alleged that they in fact received furniture that failed to meet the expected standard for the price charged. HH Plc retained this furniture and used it.
Phoenix brought a claim for unpaid invoices and relied on a term contained within its T&C’s that it “shall be under no liability under a warranty if the total price of the goods has not been paid by the due date for payment”. HH Plc averred that practical completion had not occurred and the sum owed to Phoenix had not arisen. No independent certifier had confirmed the due date for payment.
What did the court say?
The court first assessed whose Terms & Conditions were used. It found that Phoenix had provided a hard copy of its T&Cs to HH Plc even though these were later replaced with revised T&Cs referred to in emails between the parties albeit not actually attached to those emails. The court held that Phoenix’s T&Cs were validly incorporated into the contract for a plethora of reasons including; (i) there was a history of dealings between the parties, (ii) HH Plc had been provided with an older hard copy in a presentation pitch, (iii) HH Plc accepted the contract subject to T&Cs and (iv) there was no attempt by HH Plc to contract on their own terms.
Was the limitation of liability clause reasonable?
The Judge held it was not, mainly because the clause was “tucked away in the undergrowth of T&Cs” such that sufficient notice of it had not been provided. He also held it was unreasonable in that the slightest delay of payment precluded HH Plc from bringing a claim relating to the furniture’s quality as Phoenix’s warranty would not take effect until the price had been paid by the dubious due date. Phoenix had also failed to explain why it did not choose to include a clause preventing HH Plc from setting off the value of its claim for poor quality against the purchase price. That in the court’s view would have been far more reasonable.
Why is this important?
Although largely fact specific, some factors the courts tend to consider in determining whether a term is reasonable include the following:-
- Equality of bargaining power – strength of each party in terms of size, revenue or price;
- The extent of negotiating a particular term;
- The choice of terms generally, commonly the last set of T&Cs sent by one to another tend to prevail;
- Trade practice and determining whether these sorts of terms are common; or
- The ability to pay for the amount being charged – the higher the amount the more scrutiny as to the term’s reasonableness.
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