When ticking a box can cost your a fortune

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How much would you pay for some gift bags? How about $2.26 million?

A recent decision of the NSW Supreme Court is a timely reminder that unfair contract terms may be lurking in many standard form contracts.

The Agreement

Michael Hill Jewellers (MHJ) is a well-known retail giant with nearly 300 stores in Australia, New Zealand and Canada.

MHJ had an ongoing relationship with its supplier, Gispac, to supply shopping bags given to customers when they purchased jewellery from MHJ’s stores. Gispac would hold large quantities of stock in warehouses, and MHJ would draw down those supplies as needed.

In 2014, MHJ agreed to a new quote for the supply of 2,000,000 shopping bags for approximately $950,000. The quote integrated Gispac’s terms & conditions (T&Cs) via hyperlink. To place the order, MHJ had to sign the quote and tick a box saying it accepted Gispac’s T&Cs.

The Amendments

Because Gispac had historically manufactured and stored bags before MHJ needed them, it incurred related costs with no guarantee that MHJ would keep ordering. So it amended its T&Cs in significant ways, including inserting requirements that MHJ must:

  • acquire bags exclusively from Gispac;
  • buy a minimum quantity of bags every year for at least two years; and
  • if it fails to purchase the minimum amount, MHJ must make quarterly payments to cover the shortfall.

The T&Cs also automatically renewed the agreement between the parties every two years unless MHJ opted out.

These amended T&Cs fundamentally changed the commercial agreement, and Gispac did nothing to advise MHJ that it had amended its terms. Further, the officers who signed on MHJ’s behalf did not read the updated T&Cs before signing the quote and ticking the box.

For a number of years, Gispac did not enforce its amended T&C’s.

Then, one day in 2019 it issued three separate debit notes for “shortfall amounts” for more than $2,260,000. MHJ did not make payment. Gispac initiated legal proceedings and was successful.

MHJ was ordered to pay $2,260,000 to Gispac as well as interest and costs. MHJ is considering whether it will appeal.

What’s the lesson and how does this relate to Unfair Contract Terms?

There are two items to note.

Firstly, ticking boxes without reading a contract properly is poor supply chain management.

Secondly, parties can sometimes be a little blasé when it comes to standard form contracts. They are often inclined to accept T&Cs without due consideration.

This is part of the reason new laws concerning Unfair Contract Terms have recently come into effect.

On the face of it, a number of Gispac’s amended terms may be unfair. Had these laws been in place and applied to the transaction described above, the outcome would likely be reversed.

Further, if Gispac’s T&Cs were deemed to be unfair, it would have been an offence for Gispac to enter into the contract or even seek to rely on an unfair term.

In short, there would be significant commercial and legal consequences for Gispac and MHJ would be $2.26 million better off.

Given how drastic the outcomes may be, all businesses that use standard contracts with their customers (including terms & conditions) should immediately review their trade documents to ensure that they are compliant with the new rules.

Aintree Group Legal will be happy to discuss this matter with you. Contact us today.