TT Talk - Caught red faced - incorporating contractual terms

Incorporation of Standard Trading Conditions is an 'old chestnut', but remains critically important in supply chain operations. Don't let the 'big picture' deal blind you to such protective 'detail'.

A contract is an agreement, between at least two parties, where in exchange for the payment of a contractual price by one party, the other party agrees to provide goods or services. In practice, where there is pressure to win or retain business the parties' energy can be focussed almost entirely on commercial aspects. Rightly so, one might say; trade, after all, makes the world go round. That may be so, but where the parties have failed adequately to think about liability issues, a claim resulting from negligence or a breach of some other contractual obligation has the potential to bring things to a grinding halt.

This is the real world and despite best intentions claims arise with frequent regularity. One way in which a party can try to protect itself is by taking appropriate steps to ensure that its Standard Trading Conditions (STCs) are incorporated into the contract.

Contract essentials

All STCs should include terms covering: the scope of services, the basis of liability (ie. negligence based or strict liability), defences, limits of liability, time limits for notification of claims and for the commencement of legal proceedings, and an appropriate law and jurisdiction clause. Whether those clauses are 'reasonable' is another question outside the scope of this article (see TT Talk, November 2016 [link]), but it must be borne in mind that even if a party can show that its STCs form part of the contract, there may be scope for the other party to challenge their enforceability before the Courts.

Broadly speaking whether you are dealing with Federal or State law in the US, European (or other) civil law jurisdictions or English (or other) common law jurisdictions, the obligation is on the party seeking to rely on its STCs to give the other party adequate notice that the contract is subject to its STCs. And it must do so before the contract has been concluded; any notification which takes place after the contract has been concluded is completely ineffective.

"the obligation is on the party seeking to rely on its STCs to give the other party adequate notice that the contract is subject to its STCs"

Furthermore, where the contractual counterparty is a consumer (as opposed to a business), or where there is some other inequality in the bargaining strength of the parties or where the terms are particularly onerous or unusual then the party seeking to rely on its STCs has a stricter obligation to ensure that the existence of (and in some jurisdictions the actual text of) its STCs is brought to the other party's notice.

Essentials for incorporation

The safest way to ensure incorporation is to have a written and signed contract that incorporates the STCs, although care must be taken to ensure that where the main contract and the STCs incorporated into it are in conflict there is a clear mechanism determining which clause(s) take priority. Alternatively, there could be a simple written and signed document acknowledging that the STCs apply. In the absence of a signed document, however, notice can be given by other means, such as by reference to the application of the STCs in written communications (including emails) or in other contractual documents, such as quotations, or on the company's website. A court's natural sympathy will often be against the party seeking to rely upon its STCs and it will look closely at the evidence in order to determine whether this party has given adequate notice that the STCs applied and that it did so before the contractual agreement was reached.

"A court's natural sympathy will often be against the party seeking to rely upon its STCs"

All service providers should have a system in place to ensure that their STCs are properly incorporated and that staff tasked with dealing with contracts, often booking clerks, are adequately trained and understand why it is so important to make sure the STCs apply. After all, it is the company's reputation, financial performance and insurance record that are on the line. In the transport and logistics sector, where margins are often tight, the likely earnings achieved under any contract could be dwarfed by the potential liabilities arising from a breach. If the operator fails to incorporate its STCs it may also prejudice its insurance cover and so to some extent could find itself 'self-insuring' the claim; if the sum involved is large enough, it could be the end of the road for that particular business.

See red

Remember, if you wish to trade on STCs, it is your obligation to bring them to your contractual counterparty's notice before you reach agreement to provide the services. Heed the words of Lord Denning in the 1956 case of J Spurling Ltd v Bradshaw,

'.the more unreasonable a clause is, the greater the notice which must be given of it. 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.'

We hope that you have found the above interesting. If you would like further information, or have any comments, please email us, or take this opportunity to forward to any colleagues who you may feel would be interested.

We look forward to hearing from you.

Peregrine Storrs-Fox

Risk Management Director, TT Club

Staff Author

TT Club