Incorporation of contractual terms—industry standard terms and conditions

Scotbeef Ltd v D&S Storage Ltd (in liquidation) [2022] EWHC 2434 (TCC)

The question

Were food storage and distribution terms and conditions “industry standard” and were they incorporated into a contract? Were the “industry standard” terms and conditions which limited liability onerous?

The key takeaway

Where terms and conditions used in a particular industry are purported to be “standard”, it doesn’t necessarily mean that they will be taken as “accepted”. Key terms such as industry terms and conditions should be expressly incorporated into the contract to avoid the need to argue incorporation in other ways such as by specific course of dealing.

The background

The High Court has ruled on whether Food Storage & Distribution Federation (FSDF) terms and conditions were incorporated into a contract and the effect of this on the defendant’s liability in a dispute between a meat manufacturer (Scotbeef) and storage company (D&S).
Scotbeef claimed £395,588 from D&S, arising out of the alleged breach of contract by D&S regarding storage of Scotbeef’s meat. Some of the meat was found to be covered in mould and had to be destroyed. D&S admitted that mould was present on the meat products but denied that it was caused by the refrigeration system at the storage facility or their breach of contract. D&S asserted that the FSDF terms and conditions were incorporated into the contract. These included time bar conditions. Even if the claim was not time-barred, D&S maintained that the FSDF terms and conditions limited any damage caused by a breach to £250 per metric ton. D&S argued that the original contract was subsequently amended to incorporate the FSDF terms and conditions.

The decision

The High Court first considered whether the FSDF terms and conditions were standard within the industry, as the answer to this affected the adequacy of notice given by D&S of the FSDF conditions. The court did not consider the terms to be the industry standard; D&S had not provided sufficient evidence to establish that this was the position.

The court determined that time started to run for Scotbeef’s claims, according to the FSDF terms and conditions, for each pallet of meat on the date when Scotbeef became aware of there being a problem with the individual pallet of meat or, if sooner, the date when they would have become aware if they had acted with due diligence. Any ambiguity in drafting would be read in favour of Scotbeef as the clause was relied upon by D&S. If the FSDF conditions were incorporated into the contract, only the claims relating to the first six pallets of meat would have been time-barred. 

The court then dealt with whether the FSDF clauses which limited liability were onerous. A clause which prevented legal proceedings from being brought unless they were issued and/or served within nine months of the event giving rise to the claim, was found not to be onerous. Another clause that required Scotbeef to provide written notice of a claim within 10 days of the date upon which it became aware of the event giving rise to the claim and provide full details of the claim within 21 days of the date of the event was not onerous either. Although these time limits were short, they were not short enough to be onerous. 

However, the court found that the FSDF terms had neither been incorporated by notice nor by variation:

• D&S claimed that members of D&S made phone calls to both an employee of Scotbeef and to “all customers” to inform them of the change to FSDF terms from the previous terms. The court decided that there was insufficient evidence of these telephone calls being made. 
• D&S argued that sufficient notice of incorporation of the FSDF conditions was given to Scotbeef due to the wording “FSDF Terms & Conditions Apply” on the invoices. The court deemed this to be insufficient notice as Scotbeef was given no indication as to what the FSDF was, or where to locate the terms and conditions. Further, the terms could not be incorporated by a course of dealing because the wording was only mentioned on one invoice over the nine months before the claim was made. 
• notice by signature of the invoices was not possible as the signature formed part of an internal process to approve payment.
• the court rejected Scotbeef’s claim that the FSDF conditions should be struck down under the Unfair Contract Terms Act 1977 (UCTA). The term requiring prompt notice of a claim and sufficient details about the claim to allow D&S to investigate it was not deemed to be unreasonable. Nor was there anything unreasonable about requiring the commencement of proceedings within nine months where the parties “on the face of it, were of equal bargaining power”.

The FSDF terms and conditions were not incorporated into the contract, nor was Scotbeef’s claim time barred or limited by the FSDF terms and conditions.

Why is this important?

Terms of a contract can be incorporated by a signed written document, by adequate notice of the terms being given and by course of dealing. In essence, all reasonable steps should be taken to ensure that terms are agreed and fully incorporated into the contract.
The mere fact that one or both parties belong to a trade association will not guarantee the automatic application of that association’s terms and conditions. 

Any practical tips?

Ensure key terms such as industry terms and conditions are expressly incorporated into the contract—the fact that they are purported to be “standard” doesn’t necessarily mean that they will be taken as “accepted”. Express provision will avoid the need to rely on incorporation by notice or course of dealing, should a dispute arise. 

Where the parties are of equal bargaining power and time limit clauses are common in the industry in question, it is acceptable for time limits to be fairly tight. Here a requirement to give written notice within 10 days of the customer becoming aware of the events giving rise to the claim, or the date they would have become aware if they had acted with reasonable diligence, with a detailed claim to allow for investigation to be submitted within a further 21 days, was held not to be onerous or unreasonable under UCTA.

While it is usually best for both parties to sign a variation to the agreement in order to incorporate terms into a contract, it could have been done in this case via an email exchange which clearly set out the terms of the agreement. 

Winter 2022