Tax advice firm’s ‘service cancellation fee’ not incorporated into contract with wholesale grocer

About this case:

• Citation:
  [2024] SC GLA 38
• Judgment:
  External link
• Court:
  Sheriff Court
• Judge:
  Sheriff Stuart Reid

ZLX Ltd was engaged by James Mackie Wholesale Ltd to submit a claim for tax relief on the defender’s behalf, but its services were later terminated. The pursuer argued that its standard terms and conditions, including the cancellation fee, had been incorporated into the contract via a “client pack” emailed to the defender after a meeting between the pursuer’s Chief Executive Officer and a director of the defender.

The case was heard by Sheriff Stuart Reid in Glasgow Sheriff Court. Written submissions were provided by solicitors for both parties.

No recovery, no fee

The pursuer’s services comprised the provision of tax advice on businesses’ eligibility for research and development tax relief from HMRC and assisting clients with the preparation and submission of such claims. In August 2021 the pursuer’s CEO, Stephen McCallion, contacted the defender’s director, Robert Paterson, to arrange a time to meet in order to offer the pursuer’s services to the defender.

At a meeting on 27 August, Mr McCallion advised Mr Paterson that the defender was eligible to make a claim for R&D relief in relation to a new refrigeration unit installed on the defender’s premises. Despite Mr Paterson telling Mr McCallion that the unit was purchased “off the shelf” from a specialist contractor and of a common type used by the industry, the services of the pursuer were accepted based on express advice that it would act on a “no recovery, no fee” basis.

A few months later, the pursuer emailed a “Client Pack” to the defender, including a letter bearing to record the parties’ agreement. The letter referred to the pursuer’s “general terms and conditions”, which were said to be attached and hyperlinked to in the email. No such document was appended, and the hyperlink was inoperative. The defender signed the Project Letter electronically and returned it to the pursuer.

It was the pursuer’s position that its pro forma conditions had been incorporated into the contract at the date of its conclusion, and thus the defender was liable to pay the fee. The defender contested that the terms had been incorporated, but also argued that the clause on which the claim was founded was onerous and unusual and had not been properly brought to its attention by the pursuer. In any event, the agreement was vitiated by essential error, namely the pursuer’s express misrepresentation that the defender was liable for R&D tax relief.

Repeated botched communications

In his decision, Sheriff Reid said of the pursuer’s evidence: “The document founded upon by the pursuer is undated and unauthenticated. There is no credible or reliable evidence to identify that particular document as the same document to which reference is made in the pursuer’s Project Letter. The document was not attached as an ‘appendix’ to the Project Letter, despite wording in gremio to that effect.”

Assessing the reliability of Mr McCallion as a witness, he also noted: “The evidence tends to undermine the reliability of his unvouched testimony that the hyperlink to the pursuer’s terms and conditions was operative and accessed. Instead, the more natural inference to be drawn from the pursuer’s repeated botched communications is that pursuer’s administrative support structure at the time was unpredictable, unreliable, under strain, and driven by the motivation quickly to clinch a deal to secure an employee ‘bonus’.”

Turning to the defender’s fair dealings argument, the sheriff said: “[The impugned terms] seek to impose a significant and unexpected burden upon the non-performing party. They are onerous and unusual. They depart in a material way from the terms which would reasonably be expected to apply to this type of one-off, speculative appointment. Nothing sufficient has been done by the pursuer to bring the defender’s attention, fairly and reasonably, to these onerous, unusual and innovative terms.”

He concluded on misrepresentation: “I acknowledge that an honest expression of opinion, or mere ‘advertising puff’, will not readily be characterised as a misrepresentation. However, Mr McCallion’s First Representation went further than that. It was a categoric, unqualified representation of a fact (eligibility for R&D tax relief), which lacked any reasonable evidential or factual foundation standing the manifest absence of any accounting or financial vouching. Accordingly, the parties’ contract should be reduced ope exceptionis.”

After further concluding that even if it was incorporated into the contract the cancellation fee was an unenforceable penalty clause at common law, Sheriff Reid repealed the pleas-in-law for the pursuer, reduced the parties’ agreement, and assoilzied the defender from the craves of the writ.