Wake-up call: Why you should always read the small print

Before clicking the ‘I accept’ button, it’s worth taking your time to check that the important terms are acceptable, says Jenifer Martindale

The problem

Hotel California has entered into a three-year linen service contract with supplier Clean Sheets and agreed to Clean Sheet’s standard terms and conditions without reading the small print.

The terms and conditions contain an auto-renewal clause, unless notice to terminate is given at the end of the three years, and a clause allowing Clean Sheets to increase the price for the service annually. After the first year, Clean Sheets increases its price by 25%. Is Hotel California stuck with the contract for the next two years and the annual price increases?

The law

The short answer is: yes. The court will not rewrite a commercial contract simply because a party later realises it has made a “bad bargain”.

Where a contract contains an express termination clause, the law is unlikely to imply a right to terminate the contract for convenience. In the case study above, there is an express termination clause allowing Hotel California to terminate on the giving of notice at the end of the three-year term. It is unlikely that a court would insert an additional clause allowing Hotel California to terminate the contract whenever it wishes to.

Similarly, the express clause allowing Clean Sheets to increase its prices will not become invalid or void simply because Hotel California later objects to it.

Expert advice

In the age of online and electronic contracts, a contract can be formed by one mouse click and without actually reading the relevant terms and conditions. Often these contracts are fulfilled without a hitch, and without needing to consider the small print.

When it goes wrong, however, businesses often have no knowledge of the terms they’ve signed up to and become frustrated when they discover they might be stuck with unfavourable and potentially exorbitant terms as in the case study above.

To guard against this, always read the contract documents carefully, including standard terms and conditions, and seek legal advice if necessary. Businesses should make sure to read, at the very least:

• The price clause and whether the other party can unilaterally vary the price and the mechanism for doing so.
• The duration clause and whether the contract will renew automatically.
• The termination clause – when and how can the contract be terminated.
• Any clauses dealing with consequential losses.

If any of these clauses are unacceptable, negotiate a more satisfactory clause – businesses should not feel they are tied to the other party’s standard terms, even where a contract is completed online. If the other party won’t negotiate, either take a risk and accept the clause or go to a different supplier.

Businesses should, where possible, agree the contract on the basis of their own terms and conditions. These should be reviewed regularly and updated to reflect changes in the market and the law, and adapted to suit each individual contract.

To-do checklist

• Don’t enter into any commercial contracts without reading the small print in the documents.
• At the very least, always check the price, the duration and the termination clause.
• If clauses are not acceptable, negotiate.
• If possible, make sure your business’s terms and conditions form the basis of the contract.
• Make sure your business’s standard terms and conditions are kept updated and offer the best protection.

Beware

If a party unlawfully terminates a contract (either in breach of the termination clause or where no right to terminate has arisen), the other party to the contract would have a claim against the terminating party and can seek damages for losses arising. This could include damages for the lost profit that would have been made during the entirety of the contract. The contract may also contain a consequential losses clause setting out what damages might be payable on the unlawful termination of the contract.

Jenifer Martindale is a partner at Wilsons Solicitors LLP

www.wilsonsllp.com