Fifth Circuit Court of Appeals allows incorporation of terms and conditions from party's website into contract for vessel repair under maritime law.
In the recent case of One Beacon Ins. Co. v. Crowley Marine Servs., 2011 U.S. App. LEXIS 15620, the U.S. Fifth Circuit Court of Appeals recognized the incorporation by reference of terms and conditions found on a party’ website that imposed sweeping indemnity obligations upon the other party to the contract.
The case involved a contract for a repair of a barge owned by Crowley Maritime Services, Inc. Fleet owner Crowley issued a number of Repair Service Order (“RSO”) to ship repairer Tubal-Cain. The RSO contained a description of the work, was not signed by either party, contained no pricing terms, and contained following language: THIS RSO IS ISSUED IN ACCORDANCE WITH THE PURCHASE ORDER TERMS & CONDITIONS ON WWW.CROWLEY.COM / DOCUMENTS & FORMS, UNLESS OTHERWISE AGREED TO IN WRITING. The terms and conditions could be found on Crowley’s website, a process requiring four steps, and were displayed in approximately four-point font.
Tubal-Cain proceeded with the work described in the RSO and hired a subcontractor to perform electrical work on the project. An employee of the subcontractor was injured and sued his employer, Tubal-Cain and Crowley for damages.
Crowley made a demand upon Tubal-Cain and its insurers for indemnity, based upon a contractual indemnity obligation contained in the Terms & Conditions posted on Crowley’s website. Crowley alleged that the terms and conditions referred to in its RSO required Tubal-Cain to defend and indemnify Crowley against any claim brought by Tubal-Cain’s employees and contractors, and that the terms and conditions required Tubal-Cain to carry various insurance policies naming Crowley as an additional insured. The district court found in favor of Crowley on its claims against Tubal-Cain for indemnity and that Tubal-Cain was obligated to obtain insurance coverage for Crowley’s benefit.
The Fifth Circuit Court of Appeals agreed and affirmed the district court. Tubal-Cain argued that indemnity terms which purport to indemnify a party for damages caused by its own negligence, must be "specific and conspicuous" to be enforceable under maritime law, but the appeals court confirmed that when a contract expressly incorporates another instrument by reference, showing a clear intent to incorporate the other instrument, the incorporation by reference will be recognized. The court found that the intent to incorporate Crowley’s terms was clear from Crowley’s RSO, Tubal-Cain had adequate and reasonable notice of the incorporation of Crowley’s terms, and the opportunity to review them on Crowley’s website.
The court’s decision is not unusual or surprising, and is consistent with decisions of other courts in non-admiralty contexts, recognizing the applicability of terms and conditions available through the internet so long as the party to be bound has reasonable notice of the terms at issue and manifested assent to such terms.
Maritime law has been liberal in its enforcement of one-sided terms found in ship repair agreements, often described as “red letter clauses,” due to a perceived equality in bargaining power between vessel owners and repairers. The Crowley decision takes that trend one step further, such that vessel owners and repairers must be even more vigilant in reviewing RSOs, RFPs, Work Orders and other documents relating to contractual engagements to avoid incorporation of unwanted terms into their contracts by means of a short, seemingly innocuous, sentence in almost any document relating to the work in question.
The full opinion in One Beacon Ins. Co. v. Crowley Marine Services can be found here.
