Introduction
The principle of contractual incorporation dictates how terms become part of a binding agreement. A fundamental aspect of this process involves the requirement for reasonable notice, particularly when the term in question is deemed onerous or unusual. The case of Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433 serves as a significant illustration of this principle, highlighting the necessity for a contracting party to adequately draw the attention of the other party to terms that are particularly burdensome. This judgment clarifies that such terms must be brought fairly to the recipient's notice, extending beyond mere inclusion in a standard contract document. The implications of this judgment have a significant impact on business-to-business contracts.
The Facts of the Interfoto v Stiletto Case
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433 involved a dispute between Interfoto Picture Library (IPL), a company providing photographic transparencies, and Stiletto Visual Programmes (SVP), an advertising firm. SVP ordered 47 transparencies from IPL for a client presentation. IPL sent the transparencies along with a delivery note which included a clause specifying a holding fee of £5 per day for each transparency retained past the stipulated return date. SVP returned the transparencies approximately two weeks late and subsequently received an invoice for £3,783.40, based on the holding fee. The core dispute centred on whether this particular term, concerning the high holding fee, was properly incorporated into the contract between the two companies. The issue at hand specifically concerned whether the term in the delivery note regarding the retention fees was sufficiently brought to the attention of SVP.
The Court's Reasoning on Onerous Terms
The Court of Appeal, in its judgment, emphasized that a term that is particularly onerous requires more than standard notification to be effectively incorporated into a contract. Dillon LJ referenced earlier judgments, such as Spurling v Bradshaw, where Denning LJ noted that some clauses would need to be printed in red ink with a red hand pointing to them to be sufficiently noticeable. The Court of Appeal asserted that the ‘reasonable notice’ rule, established in Thornton v Shoe Lane Parking, applies to all terms in a contract, not just exemption clauses. The court held that if a condition in a set of printed conditions is particularly onerous or unusual, the party that wants to enforce it must demonstrate that that condition was brought fairly to the attention of the other. In this particular situation, the court found that nothing had been done to specifically bring the expensive holding fee to the attention of SVP. This demonstrates that simply including a clause within a standard document was not enough to make the term legally binding if it is significantly burdensome.
Fairness and Good Faith in Contract Law
Bingham LJ, in his judgment, addressed the question of fairness and good faith within English contract law. He contrasted English law with other jurisdictions that operate under a principle of good faith when entering into and performing contracts. English law, he explained, tends to provide "piecemeal solutions" in response to demonstrated cases of unfairness. The judgments involving the sufficiency of notice were viewed as being concerned with more than pure contractual analysis. These cases were also considered within the framework of ensuring fairness, specifically the fairness of holding a party to any conditions of unusual or stringent character. Bingham LJ posited that the approach of English law, at least concerning the formation of a contract, may not differ greatly from civil law principles of good faith. The court found that IPL failed to take the necessary steps to properly bring the "unreasonable and extortionate clause" to SVP's attention. This discussion indicates that, while English law does not have a general duty of good faith, fairness is taken into account through specific rules.
Practical Implications for Business-to-Business Contracts
The Interfoto v Stiletto judgment has clear implications for business-to-business contracts. The ruling makes it clear that simply including terms in standard documents does not automatically ensure their enforceability. Businesses must take steps to make sure that any unusual and onerous terms are clearly communicated to the other party. A failure to take adequate steps to do this means such terms will be unenforceable. A business is required to actively draw attention to terms that place an unusual burden on the other party, rather than relying solely on the idea that a contract was agreed. This can be achieved by highlighting the onerous terms in some way, such as using larger, bold fonts or a clearly highlighted heading. The judgment reinforces that, in the context of contract formation, clarity and transparency are required, especially where one party might reasonably be unaware of the unusual or burdensome nature of the terms. The judgment establishes an obligation on businesses to act fairly in relation to the drafting of their contracts.
The 'Reasonable Steps' Requirement
The case highlights the significance of reasonable steps to communicate specific terms. The specific question of ‘reasonable notice’ in the context of contract formation centers on the actions of the party trying to impose a certain term. The court did not deem the inclusion of the clause on the delivery note to be sufficient to bring the term to the attention of Stiletto Visual Programmes. This demonstrates that when a term is not only unusual but also significantly more costly than those offered by comparable businesses, the party proposing that term must take active measures to bring it to the attention of the other party. The court found that IPL had not taken these additional steps. This contrasts with more common terms that might be considered normal within a particular industry, which do not require the same level of emphasis. The ruling shows that the nature of the term dictates the degree of effort required to ensure its incorporation into the contract. This is a crucial aspect of the judgment.
Relationship with Implied Terms and Exclusion Clauses
The principles addressed in Interfoto v Stiletto should be placed into the wider context of contract law that considers issues of implied terms, as well as exclusion or limitation clauses. The Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982 include implied terms in business to business contracts. The 1979 Act implies that goods must match the description given, and also that goods are of a satisfactory quality and fit for their purpose. The 1982 Act also makes implied terms related to transactions that involve goods and services, such as that goods will match their description and be of acceptable quality. Regarding exclusion and limitation clauses, these have the function of excluding or limiting a party's liability for breach of contract. The courts treat such clauses with special rules requiring both their incorporation into a contract and clear wording. The Unfair Contract Terms Act 1977 further regulates these clauses, particularly in relation to the implied terms of the 1979 and 1982 Acts and any exclusion or limitation clauses must be seen as ‘reasonable’ to be considered valid. The rules discussed in Interfoto v Stiletto operate to ensure a general standard of procedural fairness and are an important part of the wider legal framework of contract law.
Conclusion
The judgment in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433 has significant implications for the formation of contracts. The case establishes a requirement for businesses to take steps to clearly highlight the existence of onerous or unusual terms, demonstrating that simply including such terms in a delivery note is not sufficient. This judgment expands upon the ‘reasonable notice’ principle established in Thornton v Shoe Lane Parking, and extends it beyond just exclusion clauses to any contract term which is particularly burdensome. Further, the court’s discussion regarding fairness and good faith highlights the common law position on the issue, where principles of fairness are applied, albeit not as a general doctrine as in some civil law systems. This case, alongside statutory regimes like the Unfair Contract Terms Act 1977, shows the English legal system provides a framework that is designed to prevent the enforcement of excessively burdensome terms that were not properly communicated. This case remains an important authority regarding contractual incorporation.
