TT Talk - Standard trading conditions: incorporation is key
The logistics world is fraught with potential risks, and claims are perhaps inevitable. The exposure to such claims can be minimised, however, by maintaining a robust risk mitigation policy. Risk mitigation extends not only to the physical steps taken to improve operational safety and security, but also to ensuring, from the outset, that adequate contractual protections are in place.
The logistics industry is underpinned by a multitude of complex contractual relationships. Some of these contracts will be governed by mandatorily applicable international conventions or local laws, which will specify the rights and liabilities of the parties and which cannot be varied by agreement. In other situations, the parties may be free to contract on any terms they choose. In some cases, the parties may negotiate complex written agreements, and in other cases, the party providing the service may seek to simply rely upon its standard trading conditions (STCs). It is important to bear in mind that local laws may place different limits on the freedom to contract, but generally, it is the reliance upon STCs that causes the most problems in practice.
For example, a party might lose the right to rely upon its STCs because: (i) it fails to incorporate the STCs before the contract is concluded; (ii) the language of the STCs is unclear or ambiguous; and/or (iii) the relevant local law considers the terms to be unfair or unreasonable and sets them aside.
This article will focus solely on the incorporation issue from the perspective of English law. It is important to bear in mind that other jurisdictions may have significantly stricter requirements and, accordingly, operators should ensure that specific legal advice is sought regarding their particular national requirements.
Basic principle of incorporation
The party seeking to rely on its STCs must bring these to the attention of the other party before the contract has been concluded. That is, before one party accepts the other party’s offer. Notice given after the contract has been concluded is ineffective. The party seeking to rely on its STCs has the legal burden of proving that they have been properly incorporated.
The only cast-iron way of ensuring that the STCs apply is to get express agreement from the other party. For example, this would require the other party to sign a copy of the STCs or another document that refers to their applicability, or an email setting out the express agreement to the STCs. In practice, this very rarely happens.
Often, a party refers to the applicability of its STCs either at the foot of an email or on the front of contractual documents such as bills of lading, delivery notes, invoices etc. Commonly, the notice reads something like:
“All business is carried out subject to our Standard Trading Conditions, a copy of which is available on request”
“All business is carried out subject to our Standard Trading Conditions, a copy of which is found overleaf”
“All business is carried out subject to our Standard Trading Conditions, a copy of which is available on our website at www.example.com”
This is a perfectly acceptable method of incorporation, but it is not without its dangers and there is very often uncertainty.
Here are some common pitfalls:
- The contract is agreed before the notice is given
A contract is concluded as soon as one party accepts the other party’s offer. For example, if a potential customer seeks a price to move cargo from A to B, the operator’s quote would likely amount to the “offer” and as soon as the customer agrees, be it over the phone or in person, there is “acceptance” and a legally binding contract has been entered. Therefore, if the operator failed to advise the customer that the contract was subject to STCs before the customer accepted the price, any follow-up email confirming the agreement and referencing the STCs would be ineffective. This is because the notice has come after the contract has been concluded.
- The terms of the notice have not been met
If, for example, the operator emails its customer the face of a transport document, such as a delivery note, which states that the STCs are set out in full on the reverse, the STCs will not have been incorporated until the operator sends a copy of the reverse side of the document. In this instance, the customer has been denied the opportunity to read the terms.
- Multiple STCs
Very often, operators trade on different sets of STCs for each separate area of business undertaken. For example, different STCs are used for freight forwarding, warehousing, carriage and logistics services. All too frequently however, the operator does not specify which STCs apply to which service. If they fail to do so, there is a real risk that the STCs will not apply because the customer has not been given the clarity required to understand the position.
- Cumbersome websites
Utilising web-based platforms and social media to do business comes with obvious advantages, but with regards to incorporating STCs, it has its own peculiar problems. It is important to remember that the same general principle applies - if an operator fails to do what is reasonably sufficient to inform the other party of the applicability of its STCs before the acceptance of the offer, the STCs will not be incorporated into the contract. Commonly, the operator will provide a link to its website, but no obvious route to the STCs or otherwise a long list of potentially applicable STCs. As the website does not clearly state which terms apply, the customer has not been given sufficient notice of the terms in place.
How can these situations be avoided?
The solution to these potential problems seems to be multi-layered:
- Ensure that there is a clear method of contracting in place and that all relevant staff members are aware of the steps they need to take to successfully incorporate the STCs.
- Make sure that reference to the applicability of STCs on pre-contractual and contractual documents is in clear language and that the customer is told where they can find a copy.
- Confirm that the online route to the applicable set of STCs is as simple as possible; the more clicks a customer has to make to find them, the less likely they are to be successfully incorporated.
Why is this all so important?
It’s not just about winning the contract and getting business through the door. An operator needs to ensure that any breach of contract on its part does not have the potential to ruin the company.
Remember, STCs can act as both a sword and a shield. They will set out the operator’s rights against the customer’s and may give wider remedies than the local law, for example, enhanced rights to lien and sell cargo. They are also likely to shorten the relevant limitation period, meaning that claims have a much shorter tail, and of course, drastically limit the operator’s financial liability.
It is also crucial to bear in mind that most insurance products, including the TT Club wordings, provide cover based only upon the limits set out in the approved STCs. This means that if an operator fails to do what is necessary to incorporate the STCs, its insurance will only cover the liability under the STCs. This leaves the operator exposed to any liability in excess of the STC limits (this could be significant and will almost certainly exceed the profit for the job). Remember, incorporation of STCs is a key tool to protect one’s business; if there is any doubt that they have been incorporated, the Courts are likely to give the customer the benefit of the doubt and rule against the operator.
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.
Risk Management Director, TT Club
TT Talk 260 Chinese Translation (1 MB)