Incorporating by reference? Be caring and as clear as the sky is blu

Allen & Overy LLP

Allen & Overy LLP

A cancellation clause in a signed mobile phone supply contract was considered unduly onerous and not fairly and reasonably drawn to the purchaser’s attention to be incorporated by reference.

A mobile phone supplier, Blu-Sky, entered into a mobile phone supply contract with a social care provider, Be Caring, for the supply of 800 mobile phone connections with a monthly rental fee which the purchaser sought to cancel prior to connection to the network.

The supplier sought a cancellation fee of GBP 180,000 (GBP 225 per connection) for the purchaser’s early cancellation of the contract under a clause the supplier argued was included in its Ts & Cs on the basis that they were incorporated into the contract as they were referred to in the signed order form.

The court held that although the Ts & Cs were incorporated into the contract (as they were easily accessible online), the cancellation clause was not incorporated since it was unduly onerous (given the exorbitance of the total cancellation fee being 8 times the amount of any actual loss of profit by the supplier) and was not fairly and reasonably drawn to the purchaser’s attention before contract formation.

While the court acknowledged the terms were reasonably clearly brought to the purchaser’s attention in the order form, the cancellation clause was not and was “cunningly concealed in the middle of a dense thicket which none but the most dedicated could have been expected to discover and extricate” which made it difficult to “see the important from the unimportant”. Even if the cancellation clause were incorporated by reference, the court held that it was out of all proportion to any legitimate interest of the supplier in the performance of the primary obligation such that it was penal in nature and therefore a void penalty clause.

This decision reinforces the court’s approach to onerous terms in that even if such terms are included in Ts & Cs which are incorporated by reference, this will not be sufficient if these terms are not fairly and reasonably drawn to the counterparty’s attention prior to contract formation.

Judgment: Blu-Sky v Be Caring

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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