It goes without saying that buyers should examine the contract terms presented to them by their suppliers extremely carefully to discover any traps which they may contain. Better still, they should seek to contract on their own terms of purchase. However, even if neither of these sensible precautions have been taken, it appears that all may not be lost for the buyer. The recent case of AEG (UK) Ltd v Logic Resource Ltd shows the extent to which the courts are willing to come to the aid of the unwary buyer.

Briefly, the facts were that the purchaser, Logic Resource, wanted cathode ray tubes for use in radar equipment to be exported to Iran. They contacted AEG (UK) Ltd and issued them with an order without stating any contract conditions. AEG replied by sending them a document entitled "confirmation of order", which is a well-known document often used in German commercial practice. It basically constituted a counter-offer which the purchaser was presumed to have accepted by conduct.

Unfortunately, after the tubes had arrived in Iran it was discovered that they did not fit with the other equipment as was required, and that they had to be returned for modification. The dispute centred on who was to pay for the costs of them being air-freighted some £4,000.

The confirmation of order stated quite clearly that "orders are subject to our conditions of sale for extract see reverse". Then, after five conditions headed "Extracts from our conditions of sale" there was the statement: "A copy of the full conditions of sale is available on request."

The full conditions of sale contained a clause, number seven, headed "Warranty". That clause provided that the seller's liability for defects in the goods was limited to repairing them or issuing a credit, that the defective goods were to be returned carriage paid to the seller, and that all other warranties and conditions were excluded, as was any consequential loss or damage.

If these conditions governed the contract, then clearly the costs of returning the cathode ray tubes was to be borne by the purchaser.

Two points were, however, argued by the purchaser and it is the first of these issues that is particularly interesting. His argument was that clause seven as a whole, and clause 7.5 in particular which was the provision that the purchaser must pay the costs for returning the defective goods were onerous and unusual. For this reason, in order for them to be incorporated into the contract, the party putting them forward had specifically to bring them fairly and reasonably to the buyer's attention. This, so the purchaser argued, the seller had neglected to do.

It had already been established in Interfoto Picture Library v Stiletto Visual Programmes Ltd (1988) that, if a clause is particularly onerous or unusual, it must be drawn specifically to the attention of the other party. In that case, in response to a telephoned request, the library had sent the agency 47 transparencies together with a delivery note which, under the heading "Conditions", contained a number of clauses. One of these stipulated a charge for retention of transparencies over 14 days of £5 per transparency per day when the usual charge was £3.50 a week.

It was decided first that the contract was formed by the delivery note and the acceptance of the transparencies. However, it was also decided that the clause was extremely onerous and, as it had not been brought specifically to the hirer's attention, did not form part of the contract. The ruling was important as it extended protection to the buyer against unfair contract terms, into areas to which the Unfair Contract Terms Act does not apply because the clause concerned is not an exemption clause.

But was clause seven in the AEG case particularly onerous or unusual? By a majority, the Court of Appeal thought that it was, but Lord Justice Hobhouse's dissenting reasoning is more convincing. He refers to warranty clauses of this nature being common in seller's conditions; frequently they do provide that defective goods are to be returned at the purchaser's expense. Therefore, the clause could not be said to have been particularly unusual rather, it is the type of clause which one would expect to find.

As to it being paricularly onerous, it was certainly severe but that is surely a matter to be dealt with under the guidance of the Unfair Contract Terms Act when the issue can be debated with reference to the guidelines set out in the act.

However, the decision of the majority stands, so it would appear that from now on sellers must find some way of drawing attention specifically to any "unusual or particularly onerous term" if they want to be sure of their incorporation into the contract. Equally, buyers must be even more on the look out for clauses written in bold type or printed in a distinctive colour.

But none of this will apply if the parties have actually signed a sales or purchase agreement. Whether they have read it or understood it is irrelevant. They are bound by its terms. As stated recently by the Court of Appeal: "An illiterate man knows that he cannot read. A man unfamiliar with English is aware of that fact. If he then signs a document which he does not understand, then he has only himself to blame." (Lord Justice Millett in Barclays Bank v Schwartz, The Times 2 August 1995.)

Only the Unfair Contract Terms Act, if it is applicable, may then save the unwary professional buyers from the consequences of their own folly.

SM

Peter Marsh and Frank Griffiths are associates at project strategy and contract management consultancy FGA Ltd (0116 279 3383)