As a business that is regularly contracting with customers and suppliers, it can be quick, easy and efficient to have standard T&Cs in place that can be used to form the basis of your contracts. However, a common issue that we unfortunately come across is the failure to properly incorporate standard T&Cs into contracts and ensuring that an adequate contracting process is in place to assist with this.

This article looks at the incorporation of standard T&Cs in business to business arrangements and some points of best practice.

The proper incorporation of standard T&Cs into contracts is an important step in any contracting process, as the failure to do so may lead to uncertainty over what terms actually govern the relationship between the parties and may cause a ‘battle of the forms’ situation. There are various methods of incorporating T&Cs into a contract, including:

Incorporation by Course of Dealing (or the actions of the parties)

Essentially, this comes about where there has been regular trading between the parties and the trading has been consistent (meaning on the same terms via a similar or the same procedure). In these circumstances, where the parties continue trading without making clear what T&Cs apply, the terms that they have habitually contracted on (which may be one party’s standard T&Cs) will apply to the contract and be incorporated by their conduct.

This does not constitute an effective way to incorporate terms and is not best practice. In line with this, we do not recommend relying on this method to incorporate standard T&Cs into a contract. Rather this should be used solely as a fallback position, where something may have gone wrong during the contracting process.

Incorporation by Bringing to the Attention of the Other Party

This method incorporates standard T&Cs into a contract by making them immediately visible, for example by including them in a written contract or appending them to an order form or similar. In such circumstances, the T&Cs will be incorporated as long as:

• the counterparty has signed the contract; or

• if the contract is not signed, the terms are brought to the attention of the other party and they proceed in such a way that is consistent with accepting the terms (for example, by proceeding without raising any objections).

Under this method, it does not make a difference to incorporation whether the counterparty has read the standard T&Cs or not – they will be deemed incorporated in any event.

Incorporation by Reference

Incorporation by reference is the most common method for incorporating standard T&Cs in practice, but should not be confused with the incorporation method above. Instead, this method is where terms are referred to in a contractual document, for example by directing a counterparty to them on an order form or linking to them on a website.

To validly incorporate standard terms by reference, the counterparty (which is most often the customer in these circumstances) must have reasonable opportunity to read the T&Cs. It is not just enough to refer to the standard T&Cs – a copy must also be made available for review. For example, if the terms were printed on the back of an order form but no reference is made to them on the front to sufficiently draw the counterparty’s attention to look at the back, these terms might not be properly incorporated.

However, as above, the counterparty does not have to actually read the terms for them to apply, as long as they were sufficiently referenced – so, if the T&Cs were referenced on the front of a document and the counterparty knew to view the reverse but did not take the opportunity to read them, the T&Cs would still be incorporated.

Incorporating Onerous Terms

It is important to note when incorporating standard terms into a contract that extra measures must be taken when onerous terms are involved, as there is a higher threshold to pass to properly incorporate these terms. Even though a business’ standard T&Cs may be incorporated into a contract, specific attention needs to be given to any onerous terms for them to apply and these should be made obvious to the counterparty.

If we focus on incorporating terms by reference, when doing so, onerous terms will only be validly incorporated if they are specifically called out to the counterparty. It is not enough to just refer to the T&Cs and assume that the counterparty will read them and be aware of the onerous terms. Rather, unusual and important terms should be highlighted by, for example, putting them at the start of the T&Cs, using bold font, uppercase wording, red ink or other similar techniques to specifically call them out. The well-known statement of Lord Denning highlights the importance of making onerous terms explicitly clear, as it was said:

"Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it, before the notice could be held to be sufficient."

- Lord Denning, Spurling (J) Ltd v Bradshaw [1956] EWCA Civ 3

On this basis, where there is a provision which is particularly unusual / onerous but not immediately visible, a party will not necessarily be able to rely on all or parts of its standard T&Cs and they may not be properly incorporated unless it has done enough to bring the relevant provisions fairly to the attention of the other party. For example, by pointing the other party to the relevant clauses in a prominent font.

It is also important to note that if this is overused (for example, if terms which are not onerous are highlighted in the same way), this may diminish the effect of calling out the onerous terms, leading to them potentially not being properly incorporated into the contract. Therefore, a balanced approach should be taken when deciding which terms are actually onerous and should be made prominent when incorporating standard T&Cs.

The principles set out above apply to both B2B and B2C contracts, but what is considered onerous will differ in business arrangements in comparison to consumer arrangements. Concentrating on B2B, you can assess if a term is onerous by evaluating whether it puts a significant obligation on the other party or would put them in an unfair situation. For example, provisions relating to onerous cancellation fees or limiting liability would often need to be specifically called out to be fairly and reasonably brought to the attention of the other party, incorporated and apply to the contract. Similarly, if standard T&Cs are unilaterally varied (where there is a right to do so) and onerous terms are included, the company varying the terms must bring any onerous terms to the other party’s attention, even if they may not be contractually obliged to do so.

Advice for Best Practice

Incorporating standard T&Cs into contracts can be a fundamental aspect of conducting business as it ensures certainty of contract terms and clarity in your relationships with both customers and suppliers – the common theme with incorporation is to be transparent in your contractual relationships.

As points of best practice when incorporating standard T&Cs by reference and onerous terms, a business should ensure that:

• where the terms are linked in a document, the link works and leads to the correct version of the T&Cs (rather than an outdated version or terms for a completely different product) and that these are otherwise easily accessible and understandable;

• even where the parties have previously contracted with each other on the same terms, to make a copy available each time a contract is entered into;

• it specifically calls out any onerous terms to the counterparty; and

• it gives notice to the counterparty when varying standard T&Cs unilaterally, if this is permitted under the contract.

If you would like any advice in relation to properly incorporating your standard T&Cs into a contract or would otherwise like our assistance in relation to your standard T&Cs or commercial arrangements, please contact us.