ABG Commercial Newsletter – October 2012

Prison sentence on director and shareholder for contempt of court

In a recent case a director and a shareholder in the company were both sentenced to imprisonment after being found to be in contempt of court. A freezing injunction had been granted against their company, but this was ignored by the two individuals who tried to divert funds out of the company in breach of the court’s order.

Their conduct was not an isolated incident, but extended over a period of time and was found to be a wilful interference with the administration of justice. In these circumstances the judge imposed immediate custodial sentences of 9 months and 4 months respectively.

This case highlights the powers of the courts to punish individuals who ignore court orders. Those who do so act at their own peril.

Incorporation of standard contract terms

If a term is contained in an unsigned document, such as a ticket or a notice, the term will only form part of the contract if reasonable steps have been taken to bring it to the consumer’s attention before the contract is made. Moreover, where there are onerous or unusual terms, a court may require extra steps to be taken to draw it to the other party’s attention. Some judges have said that very onerous clauses would need to be printed in red ink on the face of the document with a red hand pointing to them before the notice could be held to be sufficient.

The question of incorporation arose in a recent case in which the claimant brought a claim for a contribution to £7 million compensation awarded against it. The contribution claim was based on alleged breach of contract. It was claimed that the defendant was in breach of contract by failing to deliver a sufficient number of the fixings that were required to secure a metal grating safely or to warn the claimant that additional fixings were needed. There was a dispute as to whether the defendant’s standard terms, which included a limitation on its liability to the price of the goods supplied, were incorporated into the supply agreement for the grating and fixtures.

The judge found that in fact the defendant’s standard terms were expressly incorporated into the contract because the claimant had signed a document accepting them. However, the judge also considered what the position would have been if the document had not been signed. Were the defendant’s exclusion clauses onerous or unusual enough to trigger the requirement that they, and not merely the standard terms generally, must be fairly brought to the attention of the other party?

The judge ruled that the exclusion clause was not an unusual or onerous clause and so there was no requirement for special notice of it to be given to the other party. Exclusion clauses and limitation of liability clauses are often found in industry standard terms and in this case the claimant’s own witnesses had admitted that they expected the defendant’s standard terms to contain exclusion clauses. Further, the claimant was a commercial customer who had engaged in a previous course of dealing with the defendant and would have seen the defendant’s standard terms many times before.

Despite this ruling an important practical point also emerged. The defendant believed that its standard terms were printed on the back of every invoice, but the evidence showed this was not in fact the case in practice. This confirms that it is extremely important for businesses to ensure that all relevant paperwork bears the correct set of standard terms and to audit and update these on a regular basis.

“No set-off” clause results in summary judgment for the price of goods sold and delivered

In this recent case the claimant brought an action for the price of goods sold and delivered to the defendant. The defendant put in a defence claiming a right of set-off based on a separate claim it had against the claimant.

However, this defence failed because the claimant’s contract terms contained a no set-off clause and in these circumstances the Court granted summary judgment in the claimant’s favour. The defendant had argued that the no set-off clause was unreasonable under the Unfair Contract Terms Act, but the Court rejected this argument.

This case is a helpful illustration and reminder of how organisations should protect their finances and cash-flow through well-drawn terms of business.

Online sales

The OFT has recently conducted a review of a number of retailer websites and has found that many may not be complying fully with the Consumer Protection (Distance Selling) Regulations 2000 and the Electronic Commerce (EC Directive) Regulations 2002.

Key failures identified by the OFT include imposing unreasonable restrictions on customers’ rights to a refund and failing to provide an email contact address – a web contact form is insufficient.

Businesses which sell goods to consumers over the Internet should keep their online terms and conditions under constant review and, where necessary, take advice to ensure they comply with all aspects of consumer protection law.

The comments in this note are of a general nature only. Full advice should be sought on any specific problems.

Tim Sisson
+44 (0)115 934 3333

Andrew Sutton
+44 (0)115 934 3303