AEG (UK) Ltd v Logic Resource Ltd

A particularly onerous or unusual term is not incorporated merely because a contract generally refers to standard conditions. The party seeking to enforce it must show that the particular term was fairly and reasonably brought to the other party’s attention. Onerousness must be assessed in context, including any exclusion of statutory rights and limitation of remedies. Under the Unfair Contract Terms Act 1977, the party relying on a controlled term bears the burden of proving reasonableness. Knowledge of the term and inequality of bargaining power are relevant. Reasonable return costs incurred abroad to mitigate loss may be recoverable where the method is reasonably foreseeable.

AEG sold 49 cathode ray tubes to Logic Resource for export to Iran. The order confirmation referred generally to AEG’s conditions of sale and stated that the full conditions were available on request. The full conditions were neither requested nor supplied, and condition 7.5 was not specifically drawn to Logic’s attention. The tubes were defective and had to be returned from Iran by air.

The Central London County Court held that the conditions were incorporated and that condition 7.5 was reasonable under the Unfair Contract Terms Act 1977. Logic appealed on incorporation and reasonableness. A respondents’ notice raised the foreseeability of the return freight costs.

Appeal allowed. Hirst LJ, with whom Waite LJ agreed, held that the general reference to AEG’s conditions did not incorporate condition 7.5.

1. Where a printed term is particularly onerous or unusual, the party seeking to enforce it must fairly and reasonably draw that particular term to the other party’s attention. The requirement applies beyond traditional exemption clauses and was engaged by the principles discussed in Interfoto and Thornton ([1989] QB 433; [1971] 2 QB 163).
2. Condition 7.5 had to be assessed in the context of condition 7 as a whole. Condition 7.7 excluded the implied statutory terms under the Sale of Goods Act 1979, while condition 7.4 imposed a limited return-for-repair remedy. In that context, requiring buyers to bear the return costs was extremely onerous and unusual. There was no evidence that it was a standard or common term.
3. The incorporation question was one of mixed fact and law. The District Judge erred by applying only the ordinary notice test, considering condition 7.5 in isolation, and relying on insurance without evidence that the risk was insurable.
4. Hirst LJ considered that the respondents would also fail under the Unfair Contract Terms Act 1977. The party relying on the term bore the burden of proving reasonableness. The statutory guidelines required consideration of the customer’s knowledge of the term and inequality of bargaining power. Waite LJ agreed.
5. Hobhouse LJ agreed that the appeal should be allowed, but differed on incorporation. He considered clause 7 to be the normal type of warranty provision found in sellers’ conditions. In his view it was incorporated, but condition 7 was unreasonable under the Unfair Contract Terms Act 1977, principally because the sellers had not pleaded or proved reasonableness.
6. The cost of air freighting the defective goods from Iran was reasonably foreseeable. It was a sensible method of mitigating loss by reducing delay, so the respondents’ notice failed.

The agreed order gave judgment for Logic Resource for £2,096.56 plus interest, with costs of the action and appeal. Leave to appeal was refused.

1. Court of Appeal (Civil Division): [1995] EWCA Civ 19 (20 October 1995). Appeal allowed with costs; the respondents’ notice was dismissed and leave to appeal was refused.
2. Central London County Court: District Judge Gerlis sitting as Assistant Recorder held that AEG’s conditions were incorporated and that condition 7.5 was reasonable, giving judgment for AEG.