Incorporation of standard terms
ALLEN FABRICATIONS v ASD [2012]
This High Court decision is a reminder that businesses should be consistent in the way in which they incorporate their standard terms, such as making sure that they are printed on the back of, or referred to in all, proposals. One of the key issues considered in this case was whether a limitation of liability clause had been effectively incorporated as part of the supplier’s standard terms.
Facts:
- AF had acted as a prime contractor and had sub-contracted the supply of certain materials to ASD.
- When AF suffered a claim of £7million, it brought a claim against ASD for a contribution to that liability on the basis of negligence and/or breach of contract. ASD maintained that its standard terms, which limited its liability to the price of the goods supplied, were sufficiently incorporated into the supply agreement and were effective to limit its liability.
Decision:
- ASD’s standard terms had been expressly incorporated into the contract as the Court said that AF must at some point in the past have signed a document accepting them. Although ASD could not find the signed document, its practices and procedures were sufficiently robust to enable it to prove to the Court’s satisfaction that AF had previously expressly accepted ASD’s standard terms.
- Nevertheless, the Court went on to consider whether the preceding course of dealings between the parties was sufficient to mean that ASD’s standard terms applied to this particular order. In looking at this, the Court also took account of whether the limitation of liability clause was especially unusual or onerous enough to require ASD to have been required to bring that particular clause specifically to AF’s attention, as distinct from the terms in general.
- The Court found that whether a term is onerous or not will depend on the facts and context and a term in very common use is less likely to be considered to be so. Here, AF was a commercial customer who had a longstanding course of dealing with ASD and would have seen its standard terms many times before. The Court therefore found that no additional steps were required, particularly given that AF itself used limitations, appreciated their purpose in limiting risk and expected that a third party’s contract terms would include limitations of some sort.
Points to Note:
- Limitation of liability clauses set out in standard terms and conditions will rarely be deemed to be onerous for this purpose; this would seem to be so at least in contracts between substantial commercial entities. In a business to business context, it will therefore be quite rare under English law for it to be necessary to take any additional steps to bring the terms of limitation of liability clauses sufficiently to the other contracting party’s attention (such as putting wording in bold or in capitals).
- If ASD had kept the signed contract in a safe place, it could have conclusively proved the terms which formed part of the contract and any arguments about whether terms had been successfully incorporated through a course of dealing could have been avoided.
- All order forms, invoices etc, should set out the correct set of standard terms and conditions or at least contain a reference to them and where they can be found to increase the chance that they will apply either expressly or through a course of dealing.
- This case and the Ampleforth v Turner & Townsend decision both demonstrate that the threshold for incorporating standard terms into a contract with a business customer is not particularly high.
- We have produced some notes on Standard Terms and Conditions which include a summary of the benefits and limitations to bear in mind when using standard terms and which set out how standard terms can best be incorporated effectively. We hope you will find this useful.