Already a member?
Login now to see member only prices and resources

Back to news

Is there a review of unfair contract terms on the Horizon?


Wednesday 7 February 2024

Is there a review of unfair contract terms on the Horizon?
For many of us during the first week of 2024, every evening our eyes were glued to ITV’s recent, Mr Bates v The Post Office, and rightly so.

What is the Horizon scandal?
In the early noughties it was decided by the Post Office that they join the y2k revolution and digitalise their operations, leaving behind pen and paper and putting their trust in a new Fujitsu accounting software called ‘Horizon’. Not long after implementing the IT software, many post office operators began having trouble, reporting bugs in the software that were creating shortfalls in their takings and, the kicker, under the operators contracts, any shortfalls were to be made good personally by the sub-postmaster’s and sub-postmistresses themselves. 
After many failed (and later denied by the Post Office) attempts by the operators in trying to contact the Horizon team to work through their issues, certain that the software was creating incorrect numbers, 736 innocent sub-postmaster’s and sub-postmistresses found themselves subject to criminal proceedings for false accounting and theft, resulting in people losing their life savings, their homes, their credibility, their freedom and sadly for a few, their lives.  
Following years of legal suits, in 2019 the Post Office agreed to settle with 555 victims, agreeing to £58,000,000 in damages, of which the claimants shared £12,000,000 after their legal fees. The Criminal Cases Review Commission then began work on reconsidering the victim’s convictions following a High Court Judgement and since 2020 there has been an ongoing public inquiry that so far has seen 93 sub-postmasters and sub-postmistresses criminal records wiped with £24,000,000 paid out in compensation to those victims. 
Still a long way to go.

Contributing factors
The moral and legal shortfalls committed by the Post Office and Fujitsu would make anyone dizzy, but one key contributor, was the contract with Fujitsu.
One of the key legal issues arising from the Fujitsu contract is the presence of potentially unfair terms. The sub-postmasters and sub-postmistresses argue that the contracts between the Post Office and Fujitsu placed an undue burden on them by holding them personally responsible for discrepancies in the Horizon system. The lack of transparency and clarity in these contracts has raised questions about whether they were appropriately drafted and whether they complied with the principles of fairness under contract law.

The importance of understanding your contractual obligations
As depicted in Mr Bates v The Post Office, often when smaller businesses are required to enter into contracts with larger firms, they may feel that they lack the resources to fully understand the contract and may feel pressurised into entering, without really knowing what they are entering into and the implications of same.
Thankfully (although fewer for businesses as opposed to consumers) there is legislation in place to protect businesses.

The Unfair Contract Terms 1977, Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982 are pieces of legislation that a business can rely on when arguing the validity of a contractual term, they consider amongst other factors the following:
•    the bargaining power of the parties: consideration of each parties resources and respective bargaining position will be considered;
•    the remedies offered: for instance, if the contract is drafted that all remedies for loss are entirely excluded, this may be seen as unreasonable;
•    common terms within the trade: a clause may also be regarded unreasonable if it overly deviates from the normal accepted standards within the parties’ trade; and 
•    whether legal advice was given prior to signing the contract.
In addition, this legislation incorporates a number of rules that the party drafting the terms of a contract need to consider. Failure to consider may lead to certain provisions being found void and, under the principle of contra proferentem, the interpretation may be found against the drafter. These rules include if the contract:
•    attempts to exclude or limit liability for a breach of implied terms as to the quality of goods, the provision will only be valid if it is considered reasonable and the courts may visit the reasonableness test (s11(1) of the Unfair Contract Terms Act) in order to determine same;
•    attempts to limit liability for damage to property caused from negligence or a breach of an owed duty of care, or skill, will only be valid if considered reasonable;
•    attempts to impose an unduly reasonable penalty clause that is out of proportion to the potential breach, or excessive default interest rates; and
•    attempts to exclude or limit liability for death or personal injury as a result of negligence or a breach of duty of care or skill will always be considered void.

What next?
As the Horizon scandal continues to unfold before our eyes, so too do the considerations that contract law needs to be refined to prevent powerful entities from imposing unfair terms on their smaller counterparts, especially in complex agreements where the consequences can be severe. The scandal has highlighted the importance of robust legal frameworks that hold entities accountable for the functionality and integrity of the services they deliver.
This saga serves as a stark reminder of the importance of accountability, transparency, and fairness in contractual agreements, especially when the consequences can have far-reaching impacts on individuals and communities, consequences which I hope will be brought to justice in the near future.

Author Emma McCloskey, Associate, Mills Selig

Wednesday 7 February 2024

You may also be interested in