Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd 

The case of Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd is a landmark English contract law decision dealing with the incorporation and enforceability of onerous or unusual contract terms. The dispute centred on whether a particularly burdensome holding fee clause, contained in the standard terms of one party but not reasonably communicated to the other, was binding. This case emphasised the necessity for clear and reasonable notice of unusual or onerous terms before they can be effectively incorporated into a contract. It also touched on the concept of disguised penalty clauses, although this aspect was not definitively resolved. The case arose from a commercial transaction involving the loan of photographic transparencies and the imposition of a high holding fee for late return.

Facts of Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd

The dispute in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd began when Stiletto Visual Programmes Ltd (“Stiletto”) ordered 47 photographic transparencies from Interfoto Picture Library Ltd (“Interfoto”). The transparencies were delivered in a jiffy bag that contained a delivery note and standard terms and conditions. One of these conditions—Condition 2—provided for a holding fee of £5 per transparency for each day they were retained beyond a 14-day free period.

Stiletto planned to use the transparencies for a presentation but did not open the bag or read the terms and conditions inside. After holding the transparencies for about a month, Interfoto sent Stiletto a bill for £3,783.50, based on the holding fee stipulated in the terms. Stiletto refused to pay, arguing that they had not agreed to or been reasonably informed of the onerous holding fee clause.

The initial judgement was in favour of Interfoto, and Stiletto appealed the decision, challenging the incorporation and enforceability of the holding fee clause.

Legal Issues

The case presented several key legal questions:

1. Incorporation of Terms: Were the onerous terms contained in the delivery note and standard conditions effectively incorporated into the contract between Interfoto and Stiletto? Specifically, could Interfoto rely on the holding fee clause when Stiletto did not read or have prior knowledge of it?
2. Reasonable Notice Requirement: Did Interfoto take sufficient steps to bring the onerous holding fee clause to Stiletto’s attention before or at the time of contract formation?
3. Onerous or Unusual Terms: How should courts treat particularly onerous or unusual clauses that impose substantial liabilities on a party, especially when the other party has not expressly agreed or been clearly informed?
4. Penalty Clauses: Was the holding fee clause a disguised penalty, and if so, what implications would that have for its enforceability? (This point was raised but not conclusively decided.)

Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd Judgements

Court of Appeal Judgement (1987)

The Court of Appeal examined the facts and legal arguments with particular emphasis on the nature of the clause and the level of notice given.

• Dillon LJ observed that a “particularly onerous or unusual” term requires special notice to be effective. He held that Interfoto had failed to adequately bring the holding fee clause to Stiletto’s attention. Although the clause was contained in the standard terms inside the bag, Stiletto did not open or read them, and Interfoto did not otherwise draw attention to the onerous nature of the clause.
• Dillon LJ ruled that the clause was therefore ineffective as a contractual term but that Interfoto was entitled to recover a small restitutory charge on a quantum meruit basis, set at £3.50 per transparency per week, reflecting the reasonable value of holding the transparencies.
• Bingham LJ concurred, describing the clause as imposing “an inordinate liability” for what was essentially a minor delay. He stressed that fairness required the party seeking to rely on such an onerous term to show that reasonable steps were taken to bring it fairly to the other party’s attention.
• Bingham LJ advocated principles of good faith and fair dealing in commercial contracts, including “showing up your cards” and transparent communication. He emphasised that the defendants were not absolved simply because they did not read the clause; rather, Interfoto failed in its obligation to give clear notice.
• On the issue of whether Condition 2 was a disguised penalty, Bingham LJ expressly noted that this point was not argued before the court and thus was left undecided. However, he indicated that had it been properly argued and the clause brought to the defendants’ attention, it might have been enforceable.

Queen’s Bench Division Summary (1989)

In a related judgement recorded at [1989] QB 433, the Queen’s Bench Division restated the core principle that onerous or unusual clauses require clear incorporation. The court reaffirmed:

• The contract was argued by SVP (Stiletto Visual Programmes) to have been formed when the order was placed, prior to delivery.
• IPL (Interfoto) contended the contract formed upon delivery, when the delivery note containing the clause was provided.
• The court found the clause had not been successfully incorporated, primarily because IPL failed to take reasonable steps to communicate the particularly onerous and exorbitant fees to SVP.
• The fees charged were approximately ten times higher than those of other photographic libraries, underscoring the unusual and burdensome nature of the clause.
• As a result, IPL was only entitled to recover fees on a quantum meruit basis—reasonable remuneration for the service provided—rather than the full amount stipulated in the clause.

Conclusion

The case of Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd is an important authority in English contract law concerning the incorporation and enforceability of onerous contractual terms. The Court of Appeal’s decision established that a party seeking to enforce particularly onerous or unusual clauses must take reasonable steps to notify the other contracting party of these terms.

In this instance, Interfoto’s holding fee clause was deemed ineffective due to lack of reasonable notice, with Interfoto only entitled to recover a smaller quantum meruit charge. The case underscores the principle that fairness, transparency, and good faith are critical in contract dealings, especially when imposing heavy financial liabilities.