Update: commercial contracts

Recently, the European Court of Justice gave a preliminary ruling in Pannon GSM Zrt v Erzsébet Sustikné GyQrfi Case C-243/08, making it clear that the national courts must of their own accord apply the Unfair Terms Directive (93/13/EEC) to contract disputes between the parties, even where the parties do not request an assessment of the clause in question.

The consequences of the decision in Pannon is that, when a dispute between a commercial party and a consumer arises, the issue regarding fairness of the contractual terms on which the parties have dealt will automatically become a matter for the court's consideration regardless of whether the topic of that fairness has been put in question. Once the court is called upon to consider the terms for any reason, it has no option but to judge whether they are fair and, if it finds that they are unfair, the contract is then likely to be held invalid.

A Hungarian consumer, Mrs Sustikné GyQrfi, entered into a contract for the provision of mobile telephone services with Pannon in December 2004. The applicable terms and conditions provided that the court in Pannon's principal place of business, 275 kilometres away from GyQrfi's home, would have jurisdiction for any disputes. Pannon sought to take action against the consumer in that court because of the consumer's failure in complying with their contractual obligations. The court noted that the Hungarian Code of Civil Procedure asserted that the court with jurisdiction was the place where the consumer resided. As a result, the terms were incompatible with the applicable procedural rules.

The territorial court with jurisdiction referred three questions to the ECJ for a ruling. It found that, under article 6 (1) of the Council Directive, the unfair contract term was not binding on the consumer and it was not obligatory for the consumer to challenge the legality of the terms beforehand. It further held that: 'The aim of '¦ the directive would not be achieved if the consumer were himself obliged to raise the unfairness of contractual terms.' Where a national court has the necessary legal and factual components available, it must make of its own motion a decision regarding the unfairness of a contractual term.

Lastly, the ECJ determined that, where a term regarding exclusive jurisdiction has been incorporated into a contract by a supplier of services as its place of business without consulting the consumer, the term may be considered unfair within the meaning of article 3(1) of the directive.

In other words, any commercial party contemplating action against a consumer must bear in mind that standard contract terms are likely to attract the court's attention and they may get more than they bargained for when the court examines their terms and conditions.

In the meantime, businesses should consider re-assessing their standard contract terms and ensure compliance with consumer protection law to avoid an unexpected and unwelcome outcome.

Duty of care in 'advice' on website

In Patchett v Swimming Pool & Allied Trades Association Ltd [2009] EWCA Civ 717 (see 'A tangled web', Solicitors Journal 153/35, 22 September 2009) the Court of Appeal considered the scope of legal responsibility owed by those who offer 'advice' on their websites and the extent to which they will be deemed to owe a duty to readers for the accuracy of statements contained on them, or how they can limit that liability.

A split panel held that, while the defendant trade association (S) did make representations on its website which it reasonably foresaw would be acted upon, it was necessary to look at the statements on the website as a whole.

S could reasonably expect potential customers to have regard to all the information available on the website, including a recommendation to obtain S's information pack.

There was no assumption of responsibility, because the degree of reliance on the statements intended by S was limited by the advice to obtain the information pack. In the circumstances, neither was there sufficient proximity between the parties to give rise to a duty of care.

Clarity and signaling in T&Cs

Although the recent case of OFT v Foxtons Ltd [2009] EWHC 1681 (Ch) is, on its face, a case about estate agents' terms and conditions (see 'On good terms', Solicitors Journal 153/36, 29 September 2009) it is likely to have wider application to all businesses operating on standard T&Cs in contracts with consumers. The OFT sought declaratory relief in respect of alleged unfair terms in contracts between Foxtons (F) and various landlords (L) who had opted for a letting-only service to help them find a tenant (rather than F's full property-management service). The standard T&Cs used by F provided for a commission payment under certain circumstances: introduction of a tenant, the tenant extending/renewing the tenancy, subsequently purchasing the property, or a landlord assigning his rights to third parties.

L complained to the OFT that the commission terms were unfair and said that they, for the purpose of the Unfair Terms in Consumer Contracts Regulations 1999, became 'consumers', with F the supplier.

Following the complaint, F made some amendments to the T&Cs but questions as to the fairness of the terms, old and new, remained. The OFT submitted that the language used was not 'plain and intelligible'; terms relating to renewal commission were not part of the subject matter of the contract and provisions relating sales and renewal commissions were unfair.

In deciding for the OFT, Mann J held that, while terms in a contract would not always be unfair to the consumer under UTCCR, the requirement for plain and intelligible language meant a significant degree of clarity and active flagging-up of the term was likely to be required and such a clause could not be hidden away in the T&Cs: he said that 'the consumer would not expect important obligations of this nature with likely and significant impact to be tucked away in the 'small print' only, with no prior flagging, notice or discussion'.

The dangers of email contracts

The Court of Appeal has allowed an appeal in University of Plymouth v European Language Centre Ltd [2009] EWCA Civ 784 which will remind those entering into contracts through the medium of email of the dangers of insufficient detail and a lack of clarity in any correspondence.

The advantages of email as a channel of communication are well known and widely acknowledged. However, in their enthusiasm for speed and brevity, parties sometimes risk omitting fundamental information which can lead to a contract failing to be formed and thereafter being unenforceable.

This unwelcome situation could have been avoided in Plymouth by taking simple steps to ensure that there was no ambiguity in email correspondence and that all points which the parties intended the contract to cover are explicitly included.

Although emails by their very nature tend to be concise and in somewhat abbreviated form, it is essential that senders and recipients include sufficient information as a lack of detail can prove fatal.

In Plymouth, the parties had a previous consistent course of dealings between 1998 and 2005 whereby the university provided the respondent with student accommodation pursuant to a series of annual contracts. The contract that was entered into between the parties in 2005 did not contain any reference to 2006. Subsequently, a number of email exchanges led ELCL to believe that a contract had been formed for 2006 and they sought to rely on the terms when a dispute concerning payment arose. The Court of Appeal ruled, however, that the emails sent by the parties did not amount to the formation of a new contract as there was no unequivocal offer and acceptance as the correspondences were too vague and uncertain in their terms. The exchanges lacked sufficient details such that the party seeking to rely on the new contract could not have purported to accept an offer because no 'offer' had been made. The court also stated that an acceptance has to be communicated in terms that objectively set out on what basis that acceptance was made.

Consequently, ELCL, which wished to rely on the contract, incurred a loss because the court ruled that no new contract existed. It is clear that when using email to form contracts you should endeavour to set matters out fully, in detail and avoid any ambiguities, in order to make them legally binding and enforceable. It is undeniable that emails are a useful medium but users should not be lulled into a false sense of security by the expeditious nature of them.

Blaney's Blarney Order

Following on from previously highlighted mechanisms for online service of documents, perhaps the natural progression has recently taken place with Mr Justice Lewison being persuaded in early October 2009 to grant a High Court order which allowed service of an injunction via the social networking site Twitter (see solicitorsjournal.com, 2 and 7 October 2009). The permission to serve in this manner has apparently been dubbed 'Blaney's Blarney Order' after the subject matter '“ a blog called 'Blaney's Blarney'.

The order required an anonymous Twitter user, posting under the same name as '“ and thus allegedly breaching the copyright and intellectual property of '“ the blog's owner, to desist from such posting and immediately to identify himself to the claimant. It has been heralded as signalling an end to anonymous breaches of the law on Twitter, or similar social networking or blogging internet sites, and may prove to be a further useful tool to reach defendants who cannot otherwise be contacted or indeed whose identity is unknown.

The order was held on a secure server which logged the IP address of everyone who opened it and, as the defendant had the link to that page, when he looked at the order his IP address was logged, giving the claimant evidence that the order had been received and service had been successful (although, equally, Twitter maintains a log of every page impression). In this case, the defendant complied with the order; had he not, a Norwich Pharmacal Order against Twitter would have shown if he had read the order and failed to comply and he risked an award against him of the additional costs of the Norwich Pharmacal application as a consequence of failing to comply with the original order.