Why should my staff understand contract law?

Standard terms and conditions are good. They provide uniformity across all contracts and are used in some form or another in most businesses. They do have failings though: firstly, they need to be properly incorporated into the contract; and secondly, even if they are incorporated, care needs to be taken to ensure that they are not inadvertently varied.

Transformers and Rectifiers Ltd v Needs Ltd (2015)

This case remains an important reminder of how to incorporate terms and conditions and the requirement to bring them to the other party’s attention prior to forming the contract. In this case the judge dismissed claims that either side’s standard terms were incorporated because:

• The customer included their terms and conditions on the reverse of their purchase orders and failed to reference them on the front. They scanned or faxed only the front page when they sent them to the supplier
• The supplier referenced their terms and conditions as ‘available on request’ on their acknowledgement of order, but never provided the customer with a copy. Opportunity to review can be sufficient in some circumstances where industry standards may apply, but this wasn’t one of them.

Hughes v Pendragon Sabre Limited (2016)

This case revolved around a customer’s order for a limited edition Porsche 911 GT3 RS 4.0. Porsche were only making 600 cars in total and only 40 were allocated to the UK. Mr Hughes signed an order form (subject to terms and conditions) and paid a deposit on the understanding that he would be the first in line should the dealership be allocated a car.

The standard terms contained two relevant clauses:

• “the Seller shall not be obliged to fulfil orders in the sequence in which they are placed”
• “No verbal arrangements can be recognised by the Seller and no variation or modification to these terms and conditions shall be in any way effective unless in writing and signed on behalf of the Seller by a director or authorised signatory thereof”.

A few days after signing the contract, the dealership emailed the customer “I can confirm that you have placed a £10,000 deposit and placed an order for the next version of the GT3. I can also confirm that you will get the first one from Porsche Centre Bolton if we get one, which I am very confident that we will …”.

The dealership was allocated a car (just the one) but they decided to sell it to another customer who they considered to be a bigger Porsche enthusiast. Mr Hughes brought an action for damages on the basis that the limited edition car was now worth considerably more than the original list price.

The case ended up in the Court of Appeal where it was held that there was a collateral contract to the effect that if Porsche supplied a car to the dealership, Mr Hughes would be first in line – this promise was intended to have contractual effect and it was only on this basis that Mr Hughes had entered into the main agreement and paid his deposit. The court found that clause 18 was not effective to prevent the side contract taking effect and awarded Mr Hughes £35,000 (being the difference between the list price and the then market price).

These two cases highlight the importance of training your staff in how to contract on your standard terms of business, as it is all too easy to either not incorporate them into the contract at all, or to inadvertently vary them with promises made at the point of sale.

If you would like to discuss how Napthens can help with reviews of standard terms and contracting procedures and staff training requirements, please contact Phil Brown on 01772 904292 or email Philip.Brown@napthens.co.uk.