Thursday, April 19, 2007

Businesses using standard form contracts beware

By Kevin Iles

Standard form contracts are everywhere: we sign them for consultations with doctors, to hire cars, check into hotels, courier packages, conclude cellphone contracts, open bank accounts or conclude gym memberships, video contracts or newspaper subscriptions. Most people don’t bother to read the terms and conditions even though these contracts are often onerous and unfavourable to the customer. Trying to amend or renegotiate any of the terms is usually a futile exercise. Either the person you are contracting with will not have the authority to agree to any amendments, or you will simply be told that amendments are not possible because it is a standard form contract.

Standard form contracts are an essential element of the modern consumer economy and are critical in streamlining commerce and contractual arrangements. It is therefore not surprising that our courts have consistently upheld the rule of caveat subscriptor – a person is bound by what they sign. If you choose to sign a document without reading the terms and conditions, you will be held bound by that contract. Even where you know that a particular form contains terms and conditions and do not bother to read them or sign them, you may still be bound by the contract. A common example is where a form indicates on its face that there are terms and conditions on the back (generally in tiny print). Not many of us bother to turn over the page to read those terms and conditions. Or you may sign a contract which refers to certain rules which will apply and which rules are available on request. You will be bound by those rules if you sign the contract, even if you do not ask for them and do not read them.

You are also bound by the standard form contract in so-called ‘ticket cases’: For example, if a sign outside a parking garage indicates the terms and conditions for parking in that garage, parking your car inside may indicate through your conduct that you have agreed to be bound by those terms and conditions. Leaving your car at the mechanics’ workshop where there was a sign on the wall excluding liability for loss or damage will bind you to those terms as your conduct has indicated your willingness to do business on those terms.

The recent case of Hartley v Pyramid Freight (Pty) Ltd t/a Sun Couriers handed down by the Supreme Court of Appeal in September last year upholds all of these principles, but it also sounds a note of caution to those business who make use of standard form contracts. In the Sun Couriers case Hartley and his wife went in to Sun Couriers to arrange for $16 000 in counter-signed traveller’s cheques to be couriered to Jersey. Mrs Barnard, an employee of Sun Couriers, had them sign the standard despatch note. The despatch note provided that Sun Couriers would not accept any liability for negotiable instruments. As traveller’s cheques are negotiable instruments, Sun Couriers refused to compensate the Hartleys when their cheques failed to arrive in Jersey. The Court found that although the Hartleys had not read the terms and conditions, and although Mrs Barnard knew or ought reasonably to have known that they had not read it and were not familiar with the contents, she was under no obligation to point the terms of the contract and the exclusion clauses out to them.

But, had Mrs Barnard known, or if she could reasonably have known, that the Hartleys were under the impression that Sun Couriers would compensate them for the loss of the cheques, she may well have been under an obligation to point the exclusion clause out to them. In the facts of the case Mrs Barnard knew that the Hartleys were anxious about the safety of their cheques, but the evidence could not establish that she knew that they were under the impression that they would be compensated for the loss of the cheques.

The Sun Couriers case suggests that a party will not be able to rely on caveat subscriptor where a customer is under a mistaken impression about the terms in a standard form contract. Those who use standard form contracts in their businesses should therefore ensure that those employees who conclude the contracts with customers on behalf of the business are familiar with all of the terms of the contract. They should be alert when contracting with the customer to any indication that the customer may be labouring under a mistake about any of the contractual terms and, if they think there may be such a mistake, they should point out the relevant clause or advise the customer to read the contract before signing.