Exclusion clauses under UCTA
Will an exclusion clause which excludes any claim for negligence stand up to the UCTA reasonableness test?
Goodlife produces frozen food and engaged Hall Fire as a special fire suppression contractor. The parties contracted under Hall Fire's standard terms and conditions, which included the following exclusion clause (clause 11):
"We exclude all liability, loss, damage or expense consequential or otherwise caused to your property, goods, persons or the like, directly or indirectly resulting from our negligence or delay or failure or malfunction of the systems or components provided by HFS for any reason."
Reference to Hall Fire's terms and conditions was made on Hall Fire's quotation to Goodlife, alongside a statement that Hall Fire accepted no liability for damages.
In May 2012, a frying machine caught fire and led to £6.6m damages (property damage and business interruption). This was 10 years after Hall Fire had installed their fire suppression system.
The Court of Appeal looked at whether:
- the exclusion clause (clause 11) was "particularly onerous or unusual";
- if so, had it been fairly and reasonably brought to the other party's (ie Goodlife's) attention;
- whether it was reasonable under UCTA?
Coulson LJ explained that "everything turns on the context", which in this case meant he interpreted clause 11 in Hall Fire's favour. Key elements of his reasoning were:
- clause 11 was not particularly "onerous and unusual", especially in the context of the limited contract sum paid to Hall Fire of £7,490 and Hall Fire not having any on-going maintenance obligations;
- the terms indicated that Hall Fire was prepared to accept wider liability if requested by Goodlife, subject to an increase in the contract price and suitable insurance;
- Hall Fire's terms and conditions were not out of kilter with other fire suppression contractors;
- even if clause 11 was onerous and unusual, it would still have been incorporated into the contract because it was printed in clear type and expressly referred to in Hall Fire's quotation to Goodlife;
- Goodlife let a year go by between receipt of Hall Fire's quotation/terms and conditions and issuing its purchase order to Hall Fire, so Goodlife had plenty of time to review the terms and seek advice;
- as to whether clause 11 stood up under UCTA, Coulson LJ considered the bargaining power of the parties to be equal and the fact that Goodlife knew (or ought reasonably to have known) of the clause and its impact. He also found that Goodlife could have gone elsewhere for the service and, importantly, that it was reasonable to expect Goodlife (as the party who would suffer loss) to be the party best placed to issue against that loss. Hall Fire's terms had even suggested that customers like Goodlife should review its insurance arrangements.
It followed that the Court of Appeal deemed the exclusion clause to be reasonable under UCTA .
Why is this important?
The case underlines the reluctance of the courts to interfere with contracts entered into between commercial parties of equal bargaining power. As Coulson LJ quoted from Watford Electronic Ltd v Sanderson CFL Ltd: "Unless satisfied that one party has, in effect, taken unfair advantage of the other – or that a term is so unreasonable that it cannot reasonably have been understood or considered – the court should not interfere".
Any practical tips
If you are seeking to include broad exclusions in your standard terms of business, think very carefully about how you go about this. For example, consider:
- ensuring that the relevant clause(s) in your terms are visible and prominent, and not hidden;
- expressly referencing it in the upfront paperwork (as Hall Fire did with the reference to clause 11 on their quotation)
- including alternative liability provisions on request, such that the other party can effect alternative insurance arrangements. Think also about including an express warning on the other party to seek insurance against risks that are excluded or limited under the standard terms;
- looking at whether you can bench-mark your approach with other similar players in your market, and keep a record of this;
- making sure that you give the counterparty plenty of time to review your terms and conditions and to consider alternative arrangements (eg as to insurance cover).