Entering into contracts? Do it right!

Full disclosure is required when a logistics company signs a contract with a client. The cost of not adhering to this requirement can be high, warns PETER LAMB.

In the recent decision of UPS SCS South Africa (Pty) Ltd v Hendrick Cornelis van Wyk t/a Skydive Mossel Bay (SMB) the Supreme Court of Appeal (SCA) highlighted the importance of logistics companies adopting best practices in the use of their standard trading terms.

SMB required a repaired aircraft engine to be transported from Collinsville in the USA to George in the Western Cape. While in transit in the USA, the truck and cargo were burnt in a fire due to equipment failure. SMB claimed damages from UPS SCS South Africa (Pty) Ltd (UPS) for the amount of R386 140, 30.

SMB and UPS negotiated the contract of carriage via email on 22 January 2013.

Subsequently, SMB asked if it could make payment for the services upfront. UPS informed SMB that it could not do so, and that a credit application form would need to be completed in order to open an account with UPS.

The credit application form was sent to SMB. SMB signed and returned it to UPS. On the relevant portion of the first page under the heading “Credit Application” (which appears in bold print), SMB filled in its personal and business details in the manuscript. In addition, in the middle of the same page, and in smaller print, the words “Credit Facilities Required” appear in bold print. SMB entered the amount of R30 000 next to the words “Credit Limit”.  Next to the words “Payment Terms”, SMB wrote “Pay Up Front”. The second and third pages of the credit application form had not been furnished to SMB prior to receipt of the credit application. This incorporated terms and conditions, which would otherwise have applied to the contract of carriage between the parties.

The SCA held that the contract of carriage had not included the credit application, and in turn, UPS’s standard trading terms. The SCA noted that “UPS did not explain to SMB that the credit application that it was required to sign to open the account, incorporated provisions that excluded or limited UPS’s liability for loss or damage. Furthermore, the standard trading conditions and the relevant clauses which UPS seeks to rely on appear in fine print and are not conspicuously legible. They appear on the second and third pages of the credit application, which can only be read with extreme difficulty and concentrated effort. Importantly, the credit application was sent without the conditions being attached and were described by UPS as needing to be completed so that ‘we can start the process’. Nothing was said to SMB to disabuse it of the notion that all of this was merely a matter of formality.”

The SCA found in favour of SMB and held that the contract of carriage did not include the credit application form, and UPS could not rely on the exemption of liability provisions in its standard trading terms.

Logistics companies must ensure that their employees are authorised, and properly trained, to enter into contracts with their customers – particularly when the contract is entered into by email. It is important that the customer is made aware of the company’s standard trading terms at the time of entering the contract – not after it has been concluded. Specific attention must be drawn to exemption of liability clauses (and any other provisions identified by the Consumer Protection Act 68 of 2008) in the standard trading terms.