News & Insights

Michael Hill Jeweller v Gispac

Michael Hill Jeweller (Australia) Pty Ltd (Michael Hill) has been granted its appeal, in part, at the New South Wales Court of Appeal following a $2.26 million Supreme Court judgment against it earlier in January. This article examines the case, the appeal, and the key takeaways from the situation.

The facts

Gispac Pty Ltd (Gispac) had provided packaging (small and large paper bags) for Michael Hill’s retail jewellery business since September 2003 under various sale agreements.

The dispute arose when Michael Hill sought to end the contract with Gispac and engage a new packaging supplier in 2018.  Key questions arose around the commercials of the sales agreement and related terms and conditions – namely, whether the agreement was to provide product packaging on an as-needed basis or whether Michael Hill had signed up to minimum quantities over the contract period. The case centred around the sales agreements, executed in May 2014 and May 2015, which incorporated Gispac’s Standard Terms and Conditions of Trading (the Standard Terms).

Gispac alleged that a Michael Hill representative had bound the company to the Standard Terms by checking a box within the sales agreements. The checkbox and link to the Gispac terms and conditions appeared in the sales agreements as follows:

TERMS AND CONDITIONS OF TRADING

Please tick to confirm that you agree to agree to the terms and conditions that can be found at the following link:

🗹     http://gispac.com/EquoteNew/docs/gispac_terms_and_conditions_jan2012.pdf

The representative of Michael Hill conceded under cross-examination in the Supreme Court that he had not chosen to read the hyperlinked Standard Terms, despite checking the box indicating that he had.

Crucially, the checked Standard Terms contained an obligation for Michael Hill to purchase minimum quantities of bags and make shortfall payments where the minimum requirements were not reached. It also contained a 24-month term that automatically renewed unless six months’ notice was given before the end of the term. Further, the Standard Terms contained an exclusivity clause, which Gispac alleged gave rise to damages for breach once the new supplier had been engaged.

The Decision at first instance

The Supreme Court found that Michael Hill was bound by the Standard Terms and ordered Michael Hill to pay $2,259,971.40 in damages for failure to meet the minimum order quantities, and breach of the exclusivity clause, plus interest and costs. The Court held that the Standard Terms were incorporated into the contract and that Michael Hill was bound by the terms regardless of whether the Standard Terms were read or not. By checking the box and signing the contract, the Michael Hill representative incorporated the terms into the contract using a method known as incorporation by reference.

The Court dismissed Michael Hill’s argument that it should be treated as an oral contact where the rules for incorporating additional terms are more onerous. The Court instead applied the principle that the act of signing the contract would lead a reasonable person in the position of the other party, Gispac, to believe Michael Hill agreed to the terms, notwithstanding that Gispac had not enforced the minimum quantities or shortfall payments until after the contract had been terminated.

The Court of Appeal’s decision

Michael Hill appealed on the grounds that the primary judge made an error in concluding that firstly, the Standard Terms were incorporated into the sales agreements; secondly, that the sales agreements were consistent with those terms; and finally, in his interpretation of the exclusivity clause (if the Standard Terms were deemed to be incorporated).

The Court of Appeal partially allowed the appeal. The Court accepted Michael Hill’s argument that the commercial practices between the parties and the form of the sales agreements were inconsistent with the obligation to purchase a minimum quantity under the Standard Terms.  Gispac had not sought to enforce the minimum quantities or shortfall payment during the contract term, and Michael Hill had frequently ordered bags on an as-needed basis.  Therefore, the conduct between the parties did not support the minimum quantity terms.

By majority, the Court rejected Michael Hill’s position that the Standard Terms overall had not been incorporated into the sales agreements, holding that the other terms, including the exclusivity clause formed part of the contract. However, the majority found that the primary judge had miscalculated the amount owed by Michael Hill under that clause, which Gispac conceded.

The Court reduced the judgment in Gispac’s favour to $359,858. It awarded Michael Hill the costs of the appeal, whilst inviting the parties’ submissions on trial costs for later determination on the papers.

What are the key takeaways?  

The result of this case highlights the necessity of a party signing a contract to take steps to ensure that all terms expressed to be incorporated into the contract are reviewed, including any incorporated by reference or available by hyperlink. Despite the judgment amount being adjusted on appeal, the majority opinion of the Court of Appeal remained aligned with the trial judge in agreeing that the Standard Terms had been incorporated into the contract. The Court of Appeal confirmed the Supreme Court ruling that clickthrough agreements, such as Gispac’s Standard Terms, are binding and enforceable where:

• the party is aware of the existence of the clickthrough agreement and they communicate their consent (e.g. checking the box);
• there has been no undue pressure on the party to agree to the clickthrough agreement without being able to review it first; and
• the party was provided the opportunity to read the clickthrough agreement, even if they did not take this opportunity.

The Court of Appeal did, however, distinguish from the primary judge in regard to the prior commercial practices of Gispac and Michael Hill. The Court emphasised that prior to May 2014 and May 2015, the business relationship between Michael Hill and Gispac was inconsistent with the application of the minimum quantity clauses.

Between November 2012 and January 2014, the parties had executed sales agreements that often left the terms and conditions box unchecked, and only after January 2014 was the box was routinely checked. However, the Court inferred the only basis for this change in practice was a change in personnel at Gispac and was no basis for any inference of an intention of either side to vary the terms and conditions they had been practicing.

Therefore, by May 2014, when the first disputed sales agreement was executed, the Court inferred there was no intent to include the minimum quantity clauses in the contract, and therefore no obligation to purchase a minimum quantity. This determination revised the quantum awarded against Michael Hill but provides an expensive lesson for parties if they must rely on their practiced commercial relationships against any contractual provisions.

Conclusion

Ultimately, although the appeal sees the judgment amount payable by Michael Hill decreased significantly, it warns companies to review the specific contractual arrangements rather than rely upon prior commercial practices when entering any agreement.  Terms and conditions are enforceable between corporate parties where they are included by clickthrough, clickwrap or any other kind of hyperlink.  Don’t get caught out and ‘click’ before you hit that link.

If your business has terms and conditions or is considering a new supplier, the MK Trade team would be happy to help out and review those agreements before your ‘click’ costs your business.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.