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Website contract problems : Agreeing to T&C can be Risky

This article highlights website contract problems.  In particular, that there may be a risk of accepting possibly unreasonable or onerous terms and conditions when clicking a simple acceptance button on a website.  The case confirmed that contractual obligations exist even when the contractual details are provided in a website link and that there is no obligation for one party to ensure that the other party fully understands the contract.

Outline of  Website Contract Problems Highlighted

A recent case involving the well known jeweller Michael Hill has found that onerous clauses within the terms and conditions on a website will be binding if a party clicks on the website to accept the terms and conditions. This emphasises the need to thoroughly review all web based contracts and scrutinise the terms and conditions prior to accepting them.

The recent Supreme Court case Gispac Pty Ltd v Michael Hill Jeweller (Australia) Pty Ltd (2024) NSWSC 18 resulted in a noteworthy decision regarding the circumstances in which contractual obligations can be enforced upon a party. The standard to which a signee is held to contractual terms, and how readily available those terms must be, was considered.

Background of the Supreme Court Case

Gispac Pty Ltd, a supplier of packaging material, had a longstanding business relationship with Michael Hill Jewellers. The case revolves around three Sales Agreements concerning paper bags; the agreements involved Gispac storing bags at its warehouses and Michael Hill drawing down on the stock as needed.

The parties utilised Gispac’s ePlus facility, allowing individual retail stores to order directly from Gispac without the need for centralised ordering. The ePlus facility provided advantages for Michael Hill in terms of forecasting, dealing with manufacturers, and warehousing. Gispac established a secure web portal for ordering, accessible through various means like online, telephone, facsimile, or email. Gispac would then arrange delivery and issue invoices to individual stores and a consolidated invoice to Michael Hill’s head office weekly. This allowed Michael Hill stores to individually order quantities needed, alleviating Head Office intermediation. However, specific terms of the agreement outlined minimum purchase obligations, as well as a plethora of other obligations, unknown to Michael Hill at the time of purchase.

The dispute centered on the terms of these agreements and the alleged breaches.

Gispac’s Claims

Gispac’s claims against Michael Hill hinge on establishing that its standard trading terms, known as the 2012 Terms, were incorporated into the three Sales Agreements. Assuming this incorporation, Gispac argues that certain clauses in the 2012 Terms apply, leading to several key claims:

  • Annual Purchase Obligation: Michael Hill is alleged to be obligated to purchase an annual quantity of paper bags.
  • Shortfall Payments: Michael Hill is said to be obliged to pay shortfall invoices when the purchased product falls below 25% of the annual quantity in each quarter.
  • Exclusivity Obligation: Michael Hill is claimed to be bound to exclusive procurement of specified products from Gispac for its retail stores in Australia and New Zealand.
  • 24-Month Term and Automatic Renewal: Gispac contends that each Sales Agreement had a 24-month term and was designed as a rolling arrangement, automatically renewing for another 24 months unless Michael Hill gave six months’ written notice of non-renewal.

Gispac alleges that Michael Hill breached these obligations over the second term of 24 months of the Sales Agreements.  The primary claim sought liquidated damages for breach of the ‘take or pay’. Alternatively, damages were claimed for breaches of the annual quantity provision or the exclusivity provision, depending on the applicable term of the Sales Agreements. 

Michael Hill’s defences

Mr. Colvile signed Sales Agreements with Gispac, consistently acknowledging the inclusion of Gispac’s standard terms and conditions from 2012. Despite not reading the terms, he understood their significance and was aware that Gispac required agreement to these terms for the Sales Agreements. Michael Hill, however, disputed the availability of the 2012 Terms on Gispac’s website, alleging a defective or nonexistent link. 

The court ruled in favour of the plaintiff, Gispac, despite the lack of clear communication of the extensive terms attached to the initial quote. The court held that the terms, even if not easily accessible through the provided link, were effectively incorporated into the contract. The ruling emphasised that in commercial dealings, there is no obligation or expectation for one party to ensure that the other fully understands the terms. Further, as it could not be ascertained whether the link to the terms was, in fact, operable, it was ruled that this fact is ultimately irrelevant to whether the terms are effectively incorporated into a contract.

Summary of Website Contract Problems

This outcome suggests that signees to contracts should adopt a cautious approach, even in longstanding business relationships. It highlights the importance of thoroughly reviewing and seeking clarification on terms and conditions, even if they seem routine. In particular, online agreements should be scrutinised, and any references to terms and conditions should be diligently followed up. Parties entering into contracts should be proactive in obtaining and understanding the contractual obligations, as the court may not sympathise with claims of ignorance or unforeseen changes to terms, especially in the absence of consumer protection laws like the ACL. It emphasises the need for clear communication and transparency in contractual relationships, urging parties to be proactive in understanding and negotiating terms before committing to an agreement.

The contract lawyers at Brander Smith McKnight can provide all contract advice and review website based contracts with the associated terms and conditions prior to acceptance and signature.

Call us to arrange a free 20 minute no obligation consultation that includes case evaluation and cost estimate.

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