Australian case shows risk of accepting standard terms and conditions sight unseen

At issue in the case between packaging supplier Gispac and jewellery retailer Michael Hill Jeweller, was whether three separate sales agreements governing Gispac’s supply of wholesale carry bags to Michael Hill also incorporated Gispac’s terms and conditions of trading. All three sales agreements highlighted a link to Gispac’s terms and conditions within the online agreements, alongside a checkbox to confirm the terms had been read.

Crucially, Gispac’s terms included non-customary provisions such as exclusivity, an annual minimum volume guarantee from the buyer, and an associated shortfall fee if the buyer should fail to reach the agreed annual minimum volume. Gispac submitted that the mode of incorporation of its terms into the sales agreements was the act of Michael Hill’s representative signing the agreements and ticking the checkbox beside the highlighted terms and conditions.

The Supreme Court of New South Wales ultimately found in favour of Gispac.

‘Checking the box’ equivalent to signature

Under cross-examination, the Michael Hill employee who signed the sales agreements said he was aware that, by ticking the highlighted box, he was accepting Gispac’s terms and that he chose not to read them.

The jewellery retailer’s main argument was that the case should be treated as an ‘unsigned document’ case. It argued that, while the sales agreements had been signed, the terms and conditions had not been signed. As such, it said the principle used in the ‘ticket cases’ should apply, referring to a line of cases in Australia which provide that, where terms are contained in an unsigned document, reasonable notice needs to be given of the relevant terms. The ‘ticket cases’ principle also provides that it may be necessary to draw the attention of the signing party to any particularly onerous or unusual terms.

In addition to these contractual arguments, Michael Hill sought to protect itself through arguments that Gispac had engaged in misleading and deceptive conduct in not bringing the onerous terms to its attention, and unconscionable conduct on the basis that Gispac had engaged in unethical business behaviour by including unusual terms in its terms and conditions. 

The judge presiding over the case did not accept the submissions of Michael Hill, noting that the sales agreements were signed and therefore invalidated the ‘ticket case’ principle, as such cases related only to arrangements where parties have entered into a contractual relationship in the absence of a signed agreement. He also found that Gispac had not engaged in either misleading and deceptive, or unconscionable conduct.

The judge noted that, on ticking the terms and conditions box when signing the sales agreement, Michael Hill’s representative was aware that he was signing and ticking referrable to the terms and conditions. The judge added there was no external pressure to sign and Michael Hill’s representative actively chose not to read the terms.

In addition to finding that Gispac’s terms and conditions were incorporated as terms of the sales agreements, the judge found that Gispac was entitled to judgment for breach of the shortfall clause and ordered Michael Hill to pay A$2.259 million (US$1.475 million) in damages.

In the mergers and acquisition space, the case is a timely reminder that legal due diligence should look closely at terms and conditions which are incorporated by reference into contractual arrangements, and seek to understand the actual contractual risk profile of target businesses.

Co-written by Tom Walsh of Pinsent Masons