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Penal Clause 'Cunningly Concealed' in Telecommunications Contract

Onerous terms and conditions cunningly hidden amidst the small print of a contract are likely to be viewed as entirely worthless by a judge. The High Court made that point in trenchantly criticising a contract presented by a mobile phone and telecommunication services company to a social care provider.

The company had offered to supply connections for 800 mobile phones to be used by the provider's carers for a minimum period of 48 months at a monthly rental of £9,600. It asserted that the provider committed itself to the deal when its chief executive signed an order form and that its standard terms and conditions were incorporated in the contract.

Amongst those terms and conditions was a clause which stated that, in the event of the order being cancelled, the provider would be required to pay an administration charge of £225 per connection. After the provider cancelled the order prior to connection, the company billed it for £180,000 plus VAT. The provider declined to pay that sum and the company launched proceedings.

Dismissing the claim, the Court found that the clause was particularly onerous and unusual. The amount of the administration charge bore no relationship to the company's actual administrative costs and was out of all proportion to any reasonable estimate of its loss arising from the cancellation.

The Court ruled that the clause was not incorporated in the contract in that it was not reasonably and fairly drawn to the provider's attention. It was in any event a penal clause and therefore void. The densely typed, voluminous and complex terms and conditions were not in any way user friendly to any reader, let alone a non-legally qualified one.

The order form made express and clear reference to the terms and conditions, which were accessible online, but it did not explain their essential purpose or give any indication of the substantial potential consequences of cancellation. The form positively obfuscated the nature of the contract and it was not surprising that the provider was misled into believing that it was simply a precursor to entering into a contractual relationship with a mobile network service provider. No attempt whatsoever was made to highlight the penal clause.

The Court accepted that it was a contract between two commercial parties and that the provider had every opportunity to access and read the terms and conditions. The offending clause, however, was positively and cunningly concealed in the middle of a thicket of words where none but the most dedicated reader could have been expected to discover it. The case came very close to one of misrepresentation.