Why it is a Mistake to Try to Hide the ‘Nasty’ Clauses in Your T&Cs

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Businesses sometimes ask their solicitors to make the parts of their business terms that they think their customers will not like less visible or more difficult to understand.  In other words, to tuck away those clauses where they are less likely to be seen.  This has never been a good idea.  Unusual or onerous contract terms must be brought to the attention of the party signing the contract.  They cannot be buried so that they go unnoticed. The courts have made this established principle clear again in a recent case.

Good terms and conditions (T&Cs) should avoid any potential ambiguity that could increase the risk of a dispute, and failing to make the onerous terms known to the person signing the contract could also mean they are unenforceable. Additionally, businesses offering financial services must consider how the changing regulatory landscape around the Financial Conduct Authority’s (FCA) new Consumer Duty requirement needs to be reflected in their T&Cs.

The dangers of not making terms and conditions clear

In the case of BlueSky Solutions Ltd v Be Caring Ltd [2021]), the High Court ruled that a key clause in Blue-Sky Solutions Limited’s terms and conditions was not enforceable, in part because Blue-Sky Solutions Limited had not done enough to make its client, Be Caring Limited, aware of the unusual clause.

The case involved a dispute over a clause in the contract between the two companies for the supply of mobile phones and telecommunication services. Blue-Sky Solutions (the claimant) made a claim against Be Caring (the defendant) for failing to comply with the requirement to pay a fee for cancelling the agreement between them, with the claim valued at £180,000 plus VAT.

According to the contract, the claimant was supposed to provide 800 mobile phone connections to the defendant for a minimum period of 48 months at a monthly cost of £9,600. In simple terms, the claimant argued that the defendant agreed to the contract by signing an order form, which included the claimant’s standard terms and conditions for mobile services. According to clause 4.6 of those terms and conditions, if the contract was cancelled before the phone connections were set up, the claimant would be entitled to an “administration charge” of £225 per connection.

The defendant cancelled the contract before the phone connections were established. Therefore, the claimant argued that it should receive £180,000, which represented £225 for each of the 800 connections.

Key points of dispute were whether signing the order form created a contractual relationship between the parties, whether the claimant’s standard terms and conditions formed part of any contractual relationship and, if so, whether the clauses relating to the cancellation fee were enforceable.

It is important to understand here that there is a well-established common law principle that “unusual or onerous” terms must be brought to the attention of the party signing a contract. This point was critical to the case as the defendant argued that the cancellation fee was an unusual or onerous term and that including it in the standard terms and conditions did not do enough to bring the relevant clause to their attention.

The defendant also argued that, should the cancellation fee clause be found to be applicable, it would still not be enforceable as it would be considered a ‘penalty clause’ i.e. one which imposes a liability on one party that is disproportionate to any legitimate harm the other party might suffer.

Ultimately, the judge ruled in the defendant’s favour. This was on the basis that:

  • The relevant clauses were “unduly onerous” and “were not fairly and reasonably drawn to the defendant’s attention” meaning they were not incorporated into any contractual relationship between the parties
  • They were penal clauses and thus, even if they had been incorporated, they would have been void.

A contract requires agreement. So where one party keeps a contract term concealed from another party who would not expect it to be there, then there is no agreement to that term and it will not be part of the contract.

How Consumer Duty will impact business terms and conditions

The FCA’s new Consumer Duty principle will start coming into force from 31 July 2023, from which date it will apply to all sales and renewals for new and existing financial products and services. From 31 July 2024, Consumer Duty will also apply to closed financial products and services.

The Consumer Duty principle will put a new requirement on businesses offering products and services covered by the FCA to take steps to ensure they deliver “good outcomes” for customers.

In July 2022, the FCA published the policy statement PS22/9 – A New Consumer Duty (Consumer Duty), introducing new rules for financial services firms. The Consumer Duty aims to ensure firms acknowledge the impact of their products and services on consumers and safeguard them from exploitation.

The requirements include ending unfair charges and fees, facilitating easy switching or cancellation of products, providing accessible customer support, offering clear and timely information, tailoring products to consumer needs and considering the diverse requirements of customers, including vulnerable individuals.

These rules aim to support and provide valuable information to consumers, enabling them to make informed financial decisions and avoid harm throughout their relationship with the firms. Businesses are expected to communicate services clearly, meet consumer expectations and provide satisfactory customer support when needed.

Any business regulated by the FCA will, therefore, need to consider carefully how their terms and conditions meet the requirements of Consumer Duty.

Can you dispute a business’ terms and conditions?

Under certain circumstances, one can dispute whether one is bound by the terms and conditions of a business with whom one has dealt, even if those terms were made known to you at the time of your dealings.  Consumers are granted certain rights and protections under the Consumer Rights Act 2015 and other relevant consumer protection laws when entering contracts with businesses. These laws aim to ensure fairness and transparency in consumer transactions.

If a consumer believes that the terms and conditions set by a business are unfair, deceptive, or violate consumer protection laws, they have the right to challenge them. It is important to note that the legal options accessible to consumers may change depending on factors such as the nature of the dispute, the value of the contract and the specific terms being disputed.

Although consumers enjoy additional legal protections, the principle that unusual or onerous clauses in standard T&Cs should be brought to the attention of the person entering into a contract on those terms applies to businesses too.

How Longmores can help with disputes over terms and conditions

The Dispute Resolution team at Longmores is highly experienced in all manner of contractual disputes, including over terms and conditions. We can act for both claimants and defendants, with our agile and proactive team having a strong track record of success with early settlements and court proceedings.

As a firm, we can also help minimise the risk of disputes with clear advice on business contracts. Our Company & Commercial team can assist with drafting robust contracts, including bulletproof terms and conditions. We can also assist with reviewing the terms of a contract you have been asked to sign to avoid any uncertainty over the terms.

To discuss how we can help with a contractual dispute, please contact John Wiblin, Partner and Head of Dispute Resolution, who will be happy to advise.

Please note the contents of this article are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.