DO STANDARD TERMS AND CONDITIONS COVER NON-STANDARD SALES

A recent Court decision has underlined the importance of ensuring that where standard terms and conditions are used they accurately reflect how products are sold in practice. The way in which products are sold will also affect the interpretation of such standard terms.

Under the Unfair Contract Terms Act 1977 (UCTA), any term by which a supplier seeks to exclude or restrict its liability for breach of contract with a consumer or someone who has contracted on the seller's written standard terms of business, is enforceable only to the extent that it satisfies the UCTA “reasonableness test”.  This means that it was considered a fair and reasonable one to have been included in the contract, having regard to the circumstances known (or which ought reasonably to have been known) to the parties at the time of making the contract.

In the recent case of Kingsway Hall Hotel Ltd v Red Sky IT (Hounslow) Ltd, software (and related services systems had been provided by the supplier (Red Sky) to the customer (Kingsway) but had proved to be unsuitable for its needs.

Although the software was supplied by Red Sky to Kingsway with a limited express warranty, it was held that the warranty did not apply (as Kingsway had not had access to certain operating documents so that it could understand the system before entering into the contract). Also, the provisions in Red Sky’s standard terms limiting and excluding liability for breaches of the statutory implied terms of satisfactory quality and fitness for purpose were not enforceable where Kingsway had relied on Red Sky’s advice – which it had done.

The Court concluded that there was a clear disconnect between the manner in which Red Sky had sold the software to Kingsway, and the basis on which their standard terms were drafted. Red Sky clearly regarded the software as an “off the shelf” product, with the matter of assessing suitability being left to Kingsway, and had prepared its standard terms on that basis. However, the Court held that this assumption did not fit the facts of how the software was sold to Kingsway and that the limitation and exclusion clauses in Red Sky’s standard terms therefore did not satisfy the UCTA reasonableness test.

In the light of this outcome, companies should regularly check both standard terms and sales practices to ensure that they are aligned and up to date.

Chris Bannister