Incorporation of standard terms

When seeking to understand the UK's complex legislation governing unfair terms, the need to incorporate standard trading terms and conditions into a contract is often overlooked.  The recent case of C R Smith Glaziers (Dunfermline) Limited v Toolcom Supplies Limited and Fit-Lock Systems Ltd  [2010] CSOH 7 reminds us of the importance of this step in the legal analysis.

Lady Clark's discussion of this point confirms that, where a party seeks to argue that his standard terms govern the contract, the onus lies on him or her to establish that the terms have been properly incorporated.  In this case, several documents sent by one of the parties to the other referred to the existence of standard terms overleaf.  All such documents were, however, faxed.  No separate copy of the conditions was ever sent to the contractual counterparty.  Noting that cases such as these are often highly fact-sensitive, and difficult to use as precedents, Lady Clark held that the standard terms had not been incorporated.  Simply bringing the existence of standard terms to the attention of one's contractual counterparty does not amount to incorporation.  For the terms to be incorporated, a copy would have to have been provided. 

The case contains discussion of the following passage from the judgment of Mr Justice Coulson in the case of J Murphy & Sons Ltd v Johnston Precast Ltd (2008) EWHC 3024 (TCC) at paragraph 99:

"I acknowledge at once that this means that I am effectively putting to one side the words at the bottom of the Murphy order (paragraphs 62 and 63 above). However, I have concluded that it is appropriate to do so. There are a number of reasons for this. First, there is no evidence that anybody on either side paid any attention to whether or not the terms were actually attached to the order when it was faxed on 21st April. Secondly, of course, no terms were in fact faxed, so the words were meaningless. Thirdly, I do not believe that these words amount to an effective incorporation of the Murphy terms in any event. They merely draw the reader's attention to the conditions; they do not say expressly that those conditions wholesale will be incorporated into any proposed contract. They do not say that the Order is 'subject to' those conditions, or even that the order 'incorporates the conditions overleaf'. Fourthly, I am confirmed that this is the right approach by the decision in Sterling in which a similar (in fact, rather stronger) attempt to incorporate non-existent terms and conditions was rejected by the learned judge".es Turner Southern Ltd [1996] 2 Lloyds Rep. 388

Poseidon Freight Forwarding Co. Ltd. v Davies Turner Southern Ltd [1996] 2 Lloyds Rep. 388 also formed the basis of oral submissions of the parties. 

Forthcoming events from the Edinburgh Centre for Commercial Law

Next Monday 1st February 2010 is pleased to welcome Joan Cradden, from Brodies LLP. She will speak on "The furore over banker's bonuses and its influence on the development of remuneration policies and the employment contract" in lecture theatre 175, Old College. The event begins at 6 pm and will be followed by a wine reception. All are welcome to attend.

On 12th March 2010  we are delighted to confirm that the Centre's Annual Lecture will be given by Lord Hope of Craighead, Deputy President of the Supreme Court of the United Kingdom . The lecture on "Taking the case to London – maybe it's not all over after all"  will be delivered in the Playfair Library, Old College, South Bridge from 6 pm.

For further information on our forthcoming and recent events please visit our website.

Breach of warranty of authority (again)

An entry in this blog dated 26 June 2009 drew attention to the case of Halifax v DLA Piper [2009] CSOH 74.  Although the main focus of that case was the potential liability of an agent acting on behalf of a non-existent principal, readers may recall that Lord Hodge left open the possibility of a further action between the same parties on the grounds of breach of warranty of authority.  Sadly (for those of us eagerly anticipating such judgments) the Halifax case has now been settled.  Nevertheless, breach of warranty of authority has again been discussed in the Outer House in Frank Houlgate Investment Company Limited v Biggart Baillie LLP [2009] CSOH 165.

The case concerns the conduct of a fraudster who obtained sums from the pursuer for investment in a company known as Securimax.  An initial £100,000 was advanced, and a further £500,000 was to be advanced subject to the grant of a standard security over the fraudster's "ancestral estate" which was, according to the fraudster, Balbuthie Farm in Fife.  The standard security was executed and registered.  Eventually, the pursuer discovered that all was not well on reading an article in an evening newspaper which included a picture of the fraudster and a report of his conviction for fraud.  On telephoning the ancestral home, the pursuer discovered that the fraudster was not the registered owner of that property.  Addtionally, it transpired that the fraudster had forged the pursuer's signature on a discharge of the standard security and arranged for registration of the discharge in the Land Register. 

The case is of interest for its analysis of alleged negligence on the part of the solicitor acting for the fraudster.  That issue is not discussed here, but rather the alternative ground of breach of warranty of authority. 

Lord Drummond Young quotes the definition of this idea appearing in Bowstead & Reynolds on Agency (16th edn, 1996, cited with approval in Penn v Bristol & West Building Society, [1997] 1 WLR 1360):

"Where a person, by word or conduct, represents that he has authority to act on behalf of another, and a third party is induced by such representation to act in a manner in which he would not have acted if that representation had not been made, the first-mentioned person is deemed to warrant that the representation is true, and is liable for any loss caused to such third party by a breach of that implied warranty, even if he acted in good faith, under a mistaken belief that he had such authority."

 Reference is also made to another Scottish case in which this action is discussed, Anderson v Croall & Sons Ltd (1903) 6F 153.

The pursuers had based their argument on the fact that the solicitor had represented that he had authority to act on behalf of the registered owner of the land in question, over which the standard security was granted.  Lord Drummond Young swiftly rejected this argument [para 27]:

"What is significant in the formulation of the principle, however, is that the supposed agent, A, represents that he has authority to act for B in a particular transaction, with the result that the third party, C, is induced to act on that representation.  Thus the representation relates to the person for whom the supposed agent purports to act.  It does not relate to the capacity in which that person, the supposed principal, will enter into the transaction, or as to the property that person holds, or as to that person's title to any property."

Applying these principles of law to the facts of the case, the solicitor had not breached his warranty of authority – he had been authorised by a particular client to act on his behalf.  Whether or not that client had good title to the land was irrelevant in the context of the assessment of a possible case of breach of warranty of authority, and the pursuers therefore failed to establish a relevant case in this respect.

It is hoped that further cases may continue to shed light on this under-developed part of agency law.  My thanks to Esther Duncan, Dundas & Wilson CS LLP and Denis Garrity, Brodies LLP, for bringing the case to my attention.