Facts
First instance decision
Court of Appeal decision
Comment
It is well understood that parties can incorporate standard terms into a contract; however, the minimum that contracting parties must do in order to achieve this is less clear. The Court of Appeal recently held that the words 'terms and conditions available upon request' at the foot of a form of work order are reasonably capable of being understood as being intended to incorporate the contractor's standard terms.(1)
The facts of the case centred around maintenance work undertaken by the defendant, CSE, on an aircraft operated by EBJ.
The two companies had worked together for a number of years and had entered into maintenance agreements - the latest of which was dated February 4 2008 - and a continuing airworthiness managing support contract.
In addition, before starting work on an aircraft, CSE's standard practice was to require a work order to be signed on behalf of EBJ. Out of 50 work orders signed in this manner, 40 included the words 'terms and conditions available on request' at the foot of the order, just below the signature box.
In June 2008 the aircraft in question was delivered to CSE for maintenance work. A work order, containing the words at issue, was signed and the work was completed. However, the work was done negligently, resulting in damage to the aircraft engine. EBJ assigned its right to recover damages from CSE to the aircraft owner, Rooney, who brought the action.
In its defence, CSE claimed that it had undertaken the work on its standard terms and conditions. It relied on a number of those terms which (on its case) had been incorporated into the contract. The claimant applied for summary judgment on the basis that the work order was not a contractual document and was, in any event, insufficient to incorporate CSE's terms and conditions into the contract.
Justice Simon held that although it was reasonably arguable that the work order was a contractual document, the phrase 'terms and conditions available on request' was insufficient effectively to incorporate those terms. He relied on the fact that there were no words of incorporation at all, considering the phrase to be a mere statement of the fact that there were terms and conditions which were available if requested by the contractual counterparty. He struck out the parts of the defence which referred to the terms and conditions.
The Court of Appeal agreed that in order to interpret the meaning of the words used, the correct question was whether reasonable people, in the position of the parties, would understand the words used as referring to contractual terms on which CSE agreed to do the work. However, it disagreed with the first instance judge's conclusion. Although the words could be construed simply as a reference to the availability of CSE's terms and conditions, the Court of Appeal would not have expected a businessperson in the position of the parties to have construed the words in that way.
Given that the appeal was against an order to strike out parts of the defence, the Court of Appeal merely had to determine whether it was reasonably arguable that the wording was sufficient to incorporate CSE's terms. However, the court went further, finding that the incorporation interpretation was the more likely construction on the material before it. Lord Justice Toulson commented that it would be extremely unusual, in commercial terms, to have a contract for the performance of services whereby the contractor had devised detailed commercial terms, but left them for inclusion only at the customer's request.
Although the interpretation to be given will now be determined by the trial judge, the Court of Appeal's approach is clearly the most commercially attractive. To focus on the absence of express language of incorporation undermines the basic English law principle of construction, which requires courts to ascertain the meaning that the document would convey to a reasonable person with all the background knowledge that would have been available to the parties at the time of the contract.
Whatever the outcome, the divergent judicial opinions on the correct interpretation serve to highlight the importance of precise drafting. Clear and express wording should be used when attempting to incorporate standard terms.
The Court of Appeal's commercially sensible construction offers hope to parties with ambiguous words of incorporation. It also means that a party faced with this ambiguity should be aware of the danger of being bound by terms which were not expressly incorporated and which it may never have read.
For further information on this topic please contact Matthew Dando at Reynolds Porter Chamberlain LLP by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email ([email protected]).
Endnotes
(1) Rooney v CSE Bournemouth Ltd (t/a CSE Citation Centre) [2010] EWCA Civ 1364.