Online contracts: Schools as commercial entities
21 April 2020
Question: When is a consumer not a consumer?
As individuals, many of us will have signed up to terms and conditions when buying products or services online often without reading the terms and conditions fully, or understanding what they say. This confidence arises from the power of the consumer, in part due to the raft of consumer protection legislation that exists (in particular in respect of online contracts) as upheld frequently by regulators and the courts. Most businesses simply cannot afford to not "do right" by their customers.
Answer: When it’s a school
Unfortunately the same cannot be said for schools when purchasing goods or services whether online or by traditional methods. Whilst schools may not be seen as particularly commercial entities, under the relevant legislation, a school is grouped together with any other entity which is acting for the purposes of its trade, business, craft or profession i.e. not treated as a consumer and therefore not protected.
What this means is that generally where a school enters into a contract, it will be held to the terms of the contract even if the terms are onerous or unreasonable. Examples of potentially onerous clauses in standard terms and conditions include:
- the supplier's/service provider's right to vary the price unilaterally;
- for the contract to auto-renew for another period with only limited rights for the school to terminate; or
- (with relevance to the current Covid-19 crisis) a broadly drafted force majeure clause limiting the supplier's liability for failing to perform its contractual obligations.
A school will not have the "cooling off" period afforded to consumers. The supplier will generally be entitled to assume that a staff member is authorised to enter into the contract and subsequently to hold the school to its terms even if within the school the staff member had no such authority.
In this digital age, many businesses operate with online contracts and electronic signatures, which usually contain a clause confirming that the person signing has read the terms and conditions and agrees to them. The ease with which such contracts can be entered into poses a real risk to schools that its staff may be inadvertently signing up to onerous terms and conditions without a thorough review or negotiation of such terms.
While technical legal arguments could be raised about the member of staff's legal authority to bind the school to the contract, or that the law might allow more reasonable terms to be implied into the contract, these are likely to be easily rebutted by the court's unwillingness to interfere in contracts between commercial entities. As the court commented in a case in 2015 on contractual interpretation:
"it is not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice" (Arnold v Britton  UKSC 36).
So what can be done to mitigate against this risk?
- Ensure that there is a policy for staff to follow when buying goods or services online which might involve signing a contract electronically. This policy should include a process to review the contract terms and for approval to be sought from a senior member of staff before the contract is signed.
- Staff should also be cautioned against agreeing contracts (either initial terms or variations) orally by telephone, for example with utility companies.
- Schools should review all contracts periodically. Your record of current contracts should include a note of the contract end date or by when notice to terminate should be given.
Looking at the bottom line
If schools find themselves engaged in contracts with onerous terms or an inflexible approach from suppliers at this time, then it would be wise to seek legal advice on the enforceability of the terms and whether the contract can be terminated early either by way of an express contractual term or through negotiation.
Wilsons has an experienced Commercial Litigation team which can assist. For further information and advice, please contact Jenifer Martindale or your usual Wilsons contact.