New Approach to Contracts: Interfoto Principle & Terms by Reference, Study notes of Law

Download New Approach to Contracts: Interfoto Principle & Terms by Reference and more Study notes Law in PDF only on Docsity! KEY POINTS – There has been recent recognition and application of the Interfoto principle to contracts which are signed but incorporate onerous or unusual clauses by reference, contrary to the generally previously understood position that the principle could only be engaged in signature cases in “extreme cases”. – The jurisprudence may be rationalised by reference to historic recognition of a limited duty of good faith in relation to notice of onerous or unusual clauses. – Generally, including in the lending and derivatives contracts context, consideration might need to be given to providing a greater degree of notice in relation to onerous or unusual clauses which are intended to be incorporated by reference. Authors Hugh Sims QC and Jay Jagasia Blu-sky thinking: the Interfoto principle and terms incorporated by reference In this article the authors consider the implications of Blu-Sky Solutions v Be Caring [2021] EWHC 2619, including in the lending and derivatives contracts context, which suggest that a party provides to its counterparty a greater degree of notice in relation to onerous or unusual clauses which are intended to be incorporated by reference. INTRODUCTION AND THE DECISION IN BLU-SKY nMany contracts in the banking and financial services industry are signed off on the basis of incorporation, by reference, of additional standard terms and conditions. Typical examples are Loan Market Association (LMA) standard terms in relation to lending facilities and the International Swaps and Derivatives Association Inc (ISDA) Master Agreement used in relation to over-the-counter derivatives transactions. The borrower or customer may not sign a document containing those terms, though may sign a document which incorporates those terms by reference. It has generally been thought that in such signature cases the Interfoto principle, requiring a greater degree of notice in relation to onerous or unusual clauses before the court will accept they have been incorporated, does not apply, or is insufficient, and instead that it is only in “extreme cases” – for instance where the party signed under pressure without any real opportunity to read the document, such as a customer signing a car rental agreement at an airport for example – that the court may conclude the customer is not bound. However, in the recent first instance decision of HHJ Stephen Davies in Blu-Sky Solutions v Be Caring [2021] EWHC 2619, it was held that the Interfoto principle does apply where the customer signs a contract which does not itself contain the terms in question, and which are only incorporated by reference. Whilst the Blu-Sky decision may be said to represent an extension, or relaxation, of the cases where the Interfoto principle may be said to apply, it is consistent with the earlier first instance decision of Fraser J in Bates v Post Office (No 3) [2019] EWHC 606 (QB), and it may be said to reflect the same underlying principle which was recognised in the judgment of Bingham LJ (as he then was) in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] 1 QB 433. It may be questioned, however, whether such an extension is strictly speaking required given the ability to control unreasonable terms using the Unfair Contract Terms Act 1977 (UCTA), and also to decline to enforce penalty clauses, and it does give rise to a tension with the principle that a person who signs a document is generally bound by its terms. It may be thought however that this is a tension worth accepting to enable a just outcome where the circumstances of the case warrant it. THE INTERFOTO PRINCIPLE Where a contract document has not been signed then problems may arise in demonstrating what the contract terms were. Typically, the provider seeks to rely on terms contained or referred to in a notice, ticket or similar document. The courts have developed principles which govern whether sufficient notice of such terms has been given. In Chitty on Contracts (34 ed) at 15-010 it is stated that there are three basic rules regarding notice: (i) if the person receiving the document did not know there was writing or printing on it then they are not bound (though it is rare for this to arise); (ii) if they did know then they are bound; and (iii) if the party tendering the document did what was reasonably sufficient to give the other party notice of the conditions, and the other party knew that there was writing or printing on the document, but did not know it contained conditions, then the conditions will become the terms of the contract. It is this third rule, reasonable sufficiency of notice, which is then subject to an additional layer, where there are onerous or unusual terms. The principle, deriving initially from the ticket cases such as Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163, is summarised in Chitty above at 15-012 as follows: “Although the party receiving the document knows it contains conditions, if the particular condition relied on is one which is a particularly onerous or unusual term, or is one which involves the abrogation of a right given by statute, the party tendering the document must show that it has been brought fairly and reasonably to the other’s attention.” The decision in Interfoto concerned a delivery ticket which provided for charges for holding certain photographic transparencies. The standard condition in question, printed on the delivery ticket, imposing a holding fee of £5 per day for each transparency that was retained beyond a period of 14 days, was found by the court to be “a very onerous clause”. Dillon LJ ([1989] QB 433 at 438) said that “the defendants could not conceivably have known, if their attention was not drawn to the clause, that the plaintiffs were proposing 247Butterworths Journal of International Banking and Financial Law April 2022 B LU -SK Y TH IN KIN G : TH E IN TERFO TO PRIN CIPLE A N D TER M S IN CO RPO R ATED BY REFEREN CE Feature to charge a ‘holding fee’ for the retention of the transparencies at such a very high and exorbitant rate”. The first instance judge had found that if a quantum meruit had applied then a reasonable charge would have been £3.50 per transparency per week, not £5 per day. There was therefore a factor of 10 difference between a reasonable rate and the rate sought to be charged. As to whether this condition was fairly and reasonably drawn to the defendants’ attention, the offending condition was described as being “merely one of four columns’ width of conditions printed across the foot of the delivery note” (see at 433 and at 439 per Dillon LJ). The underlying reasoning of Dillon LJ was based on the fact that, like in the ticket cases, the customer generally tends to assume that the conditions are only concerned with ancillary matters of form and are not of importance, and it was a reasonable and logical development of those principles to require onerous or unusual conditions to be “fairly brought to the attention of the other party” (Dillon LJ at 438G-439A). Bingham LJ, concurring, noted that English law, unlike civil law jurisdictions, recognised no general obligation on contracting parties to act in good faith, but that the cases on sufficiency of notice should be read in the context of English law developing piecemeal solutions in response to demonstrated problems of unfairness (see at 439). He noted that on one level cases concerning sufficiency of notice were simply one of pure, objective, contractual analysis – whether one party had done enough to give the other notice of incorporation of a term. He went on to say, however: “At another level they are concerned with a somewhat different question, whether it would in all the circumstances be fair (or reasonable) to hold a party bound by any conditions or by a particular condition of an unusual and stringent nature”. He analysed the ticket cases and noted (at 433C) that this was not a one-size fits all principle, that “what would be good notice of one condition would not be notice of another” explaining that, “The reason is that the more outlandish the clause the greater the notice which the other party, if he is to be bound, must in all fairness be given”. He concluded (at 445B-C) by observing that: “The tendency of the English authorities has, I think, been to look at the nature of the transaction in question and the character of the parties to it; to consider what notice the party alleged to be bound was given of the particular condition said to bind him; and to resolve whether in all the circumstances it is fair to hold him bound by the condition in question. This may yield a result not very different from the civil law principle of good faith, at any rate so far as the formation of the contract is concerned.” Turning on to the facts of the case he noted (at 445G) that: “The defendants are not to be relieved of that liability because they did not read the condition, although doubtless they did not but in my judgment they are to be relieved because the plaintiffs did not do what was necessary to draw this unreasonable and extortionate clause fairly to their attention.” 30 YEARS ON: DO-BUY Fast forward 30 years, in Do-Buy 925 Limited v National Westminster Bank Plc [2010] EWHC 2862 (QB) Andrew Popplewell QC, then sitting as a Deputy Judge of the High Court, was required to analyse one of the contracts in the processing of credit card payments, and in particular the contract entered into between the merchant and merchant acquirer. The facts were highly unusual, involving a claim concerning the alleged sale of certain jewellery by Do-Buy in a transaction which the judge ultimately found was not genuine. The contract was formed by a signature on an application form and immediately below the signature box was reference to the fact that the signatory had read the general terms and conditions. The relevant witness accepted that she had been provided the general terms and conditions and had an opportunity to read them and that the bank was entitled to assume she had done so. In those circumstances it was concluded that the Interfoto principle should not apply, “even were it capable of applying to some signed contracts” (see at [92]). As to whether or not it was so capable, the position was summarised at [91] in the following terms: “… it remains an undecided question whether the Interfoto principle can ever apply to a signed contract. In that case the Defendant was held not to be bound by a term in a printed set of conditions which had been provided to him in the form of a delivery note, but which he had neither signed nor read. In Ocean Chemical Transport v Exnor Crags Ltd [2000] 1 Lloyd’s Rep 446, [2000] 1 All ER (Comm) 519, Evans LJ, with whom Henry and Waller LLJ agreed, was prepared to assume that the principle might apply to onerous and unusual clauses in a signed contract ‘in an extreme case where a signature was obtained under pressure of time or other circumstances’. In HIH v New Hampshire [2001] EWCA Civ 735, [2001] 2 All ER (Comm) 39, [2001] 2 Lloyd’s Rep 161, Rix LJ doubted whether the principle was properly applicable outside the context of incorporation by notice (see para 209). In Amiri Flight Authority v BAE Systems plc [2003] EWCA Civ 1447, [2004] 1 All ER (Comm) 385, 392, [2003] 2 Lloyd’s Rep 767, Mance LJ, with whom Rix and Potter LLJ agreed, noted the doubts of Rix LJ in HIH v New Hampshire and stated that it was unnecessary to decide whether the principle could ever apply to signed contracts. He envisaged that it might do so where for example a car owner was asked to sign a ticket on entering a car park or a holiday maker asked to sign a long small print document when hiring a car which in either case proved to have a provision of ‘an extraneous or wholly unusual nature’; but that such cases might be ones where the application of the provision was precluded by an implied representation as to the nature of the document. He reiterated the normal rule that in the absence of any misrepresentation, the 248 April 2022 Butterworths Journal of International Banking and Financial Law B LU -S K Y TH IN KI N G : T H E IN TE RF O TO P RI N CI PL E A N D T ER M S IN CO RP O R AT ED B Y RE FE RE N CE Feature