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Caught on our radar

Not all the
fine print is
legally binding

In many agreement situations, prices and commercial terms and conditions are negotiated while terms and conditions of a more legal nature are dealt with in the small print. In such a case, reference is often made to standardised industry terms and conditions or to the companies’ own terms and conditions of sale. Until now, the courts have mostly been interested in terms and conditions directed at private individuals, but are now also providing guidance in commercial contexts.

In a ruling from the Court of Appeal for Skåne and Blekinge, the interpretation of small print terms and conditions in a commercial relationship was the legal issue when a reference made to terms and conditions on a website were rejected.

12 months or until further notice?

On 19 June 2007, a company ordered certain information services from a supplier. The order was confirmed, whereupon reference was made to the supplier’s general terms and conditions, which could be found at the supplier’s website. The order confirmation stated that the agreement period between the parties was twelve months. A few days later, a written invoice was sent with the general terms and conditions printed on the reverse. The customer paid the invoice and started to use the service.

One year later, the company received a new invoice for another twelve-month period. The company raised an objection to the invoice, but the supplier insisted on extending the agreement since it had not been terminated in writing and, according to the general terms and conditions, the subscription had thereby been renewed. The 30 day cancellation period had already expired by the time the invoice had been sent.

The issue therefore related to whether the agreement had been entered into for a fixed period of twelve months, as stated on the order confirmation, or whether the agreement was in practice a recurring subscription until cancelled, as stated in the general terms and conditions.

Do companies need protection against small print?

In the first instance, the supplier was granted entitlement to extend the agreement in this manner. The district court was of the opinion that the order confirmation referred to terms and conditions that could be read on the website, and that the terms and conditions could also be read on the reverse of the supplier’s invoices. Since the terms and conditions made it clear that the agreement would be renewed automatically if the customer did not terminate the agreement in writing, and since no termination had occurred, the district court was of the opinion that the customer was obliged to pay for the renewal.

The court of appeal, however, issued a completely different ruling. Having noted that the customer would have avoided having to extend the agreement if this had been a consumer relationship, the court of appeal noted that there must also be requirements for clarity in relation to terms and conditions in small print in commercial agreement relationships. The court of appeal upheld a number of contractual principles on requirements for the incorporation of general terms and conditions and on interpretations to the detriment of the party that drew up the terms and conditions in the event of uncertainty. The customer was thereby protected against the extension clause, and did not have to pay for a renewed agreement period.

Is the small print part of the agreement?

The court’s ruling upheld certain basic requirements in order for small print to constitute part of an agreement. This ruling was based on the fact that terms and conditions in small print must be included in the actual agreement. This could also be done by references made to the terms and conditions, provided that this is sufficiently clear. This is particularly true if the terms and conditions to which reference is made are generally known. It is then sufficient to make clear reference to them and for them to be readily available to a party who wishes to read them.

The interesting point in the case in question is that it is not sufficient for terms and conditions to be available. Today, everyone – especially in a commercial context – can be expected to have internet access, and it is not particularly difficult to find a company’s website in order to read their terms and conditions of sale. A clear reference to these ought to be enough.

If the standard agreement is unusual or unfamiliar, which is often the case when a company uses its own general terms and conditions, making a reference is not usually sufficient. It has been discussed in legal literature that, in these cases, stricter requirements must be imposed, for example that the entire agreement should be attached or that the counterparty should explicitly confirm acceptance of the standard agreement.

The court of appeal took this stricter approach. The court was of the opinion that the agreement type in a case such as this was not of such a nature that it could be typically expected that standard terms and conditions would apply. According to the court, the general terms and conditions that had been unilaterally drawn up by the supplier could not therefore be deemed to have been incorporated into the agreement simply by referring to these in the order confirmation. Although the reference existed de facto in the order confirmation and the terms and conditions were readily available on the website, the court was of the opinion that no agreement had been entered into in relation to the general terms and conditions and their rules in relation to e.g. automatic extension. Nor was the wording on the reverse of the invoice accorded any importance. One probable reason for this was that the wording was sent too late – the agreement had already been entered into. The court of appeal also gave its reasoning on wording in small print that is not included in a mutual legal transaction but on the reverse of an invoice with a payment slip attached.

Clear and unclear

Two other factors were relevant to the outcome of the case. One applied to the interpretation of agreements, and the other to the application of agreements.

The first factor was that the court of appeal was of the opinion that the clause contained in the small print was in direct contravention to the content of the order confirmation. Reading the order confirmation alone gives the impression that the agreement is only valid for twelve months. The outcome may have been different if the order confirmation had stated that the agreement applied until further notice on a rolling twelve-month basis unless terminated. When setting an agreement period for an agreement where supplementary rules are included in the small print, it is therefore worth thinking carefully about suitable wording.

The second factor was the supplier’s procedure for invoicing for extension periods. The invoice for the extended subscription was not sent out until 5 June 2008, i.e. later than 30 days before the end of the first period. It would be interesting to know whether the outcome would have been different if a different procedure had been in place making it possible to terminate the agreement once the invoice for the extension period had been issued. Clearly, there can sometimes be penalties for being excessively cunning in commercial agreement relationships, too.