AEG (UK) Ltd v Logic Resource Ltd
Court of Appeal
Citations:  CLC 265.
The defendant received an order for equipment from customers in Iran. The defendant sent a purchase order for this equipment to the claimant. He informed the claimant that the goods were for export, but did not specify they were going to Iran.
The claimant sent back a confirmation document with an extract of their standard terms on the back. The back of the document stated that the full terms were available on request. The defendant did not request, and never read, the full terms. Clause 7.5 of the full terms required the defendant to return any defective goods at their own request.
After delivery, the defendant’s Iranian customers alerted them that the equipment was defective. The defendant arranged for the goods to be returned to the claimant by air freight. They then deducted the cost of this from the price payable to the claimant. The claimant sued the defendant for the outstanding amount, relying on clause 7.5. The defendant argued that the clause was not incorporated into the contract. In the alternative, they stated that it would be void for unfairness under the Unfair Contract Terms Act 1977.
- Was clause 7.5 incorporated into the contract?
- Was the clause void for unfairness under UCTA 1977?
The Court of Appeal held in favour of the defendant. The effect of clause 7 as a whole was to exclude liability for certain warranties and conditions, including those implied by the Sale of Goods Act 1979. In light of this, clause 7.5 was unusual and onerous. This meant that the claimant needed to give the defendant reasonable notice of the term for it to be incorporated into the contract. The claimant had failed to do this. Accordingly, there was no need to consider whether the clause was unreasonable.
This Case is Authority For…
Whether a clause is onerous and unusual needs to be considered from the perspective of the contract as a whole. The clause should not be looked at in isolation.
The burden of proving that a clause is reasonable under UCTA is on the party seeking to rely on the clause.
Hobhouse LJ dissented on the issue of incorporation. He thought clause 7 was not unusual or onerous. This was because it ‘covers a topic which commonly, and indeed normally, dealt with in the standard conditions of sellers of goods.’ He thought that the fact that the clause had extreme effect should be relevant only to the reasonableness assessment under UCTA, rather than the issue of incorporation.