Excluding statutory implied terms – inequality of bargaining power considerations

Last Bus Ltd v Dawsongroup Bus and Coach Ltd [2023] EWCA Civ 1297

The question

In what circumstances is it reasonable to exclude the statutory implied term as to quality?

The key takeaway

Whether the parties are deemed to be of equal bargaining power requires consideration of factors wider than the parties’ size, long standing commercial relationship and the availability of alternatives to contract with. Inequality in bargaining power may be found where a party is trading on the counterparty’s standard terms and no substantially different terms are available within the market, or where the effect of the term is that the party is left without a remedy.

The background

Last Bus brought a claim against Dawsongroup Bus and Coach Ltd (Dawson) for breach of various hire purchase agreements (the Agreements) relating to coaches which it claimed were defective. Last Bus’s claim was that some of the coaches acquired under the Agreements were not of satisfactory quality because they were liable to catch fire, requiring Last Bus to implement a far more onerous and expensive maintenance regime than was originally anticipated. Last Bus claimed damages exceeding €10m.

The Agreements, which were on Dawson’s standard terms, contained a clause 5(b), which purported to exclude the term as to satisfactory quality that would otherwise be implied by section 10(2) of the Supply of Goods (Implied Terms) Act 1973:

“The Customer agrees and acknowledges that it hires the Vehicle for use in its business and that no condition, warranty or representation of any kind is or has been given by or on behalf of the Company in respect of the Vehicle. The Company shall have no liability for selection, inspection or any warranty about the quality, fitness, specifications or description of the Vehicle and the Customer agrees that all such representations, conditions and warranties whether express or implied by law are excluded. Notwithstanding the foregoing provisions of this clause, nothing herein shall afford the Company a wider exclusion of liability for death or personal injury than the Company may effectively exclude having regard to the provisions of the Unfair Contract Terms Act 1977. The Customer acknowledges that the manufacturer of the Vehicle is not the agent of the Company and the Company shall not be bound by any representation or warranty made by or on behalf of the Vehicle manufacturer”.

Dawson successfully obtained summary judgment of the claim against it – in its assessment, the High Court found that the parties were of equal bargaining power and that the term that was part of Dawson’s standard terms of business was reasonable under UCTA 1977. Last Bus appealed. 

The decision

The Court of Appeal (CA) allowed Last Bus’s appeal finding that the High Court had taken the wrong approach in assessing reasonableness. Specifically, it was wrong to have approached the question of reasonableness on the basis that the parties were of equal bargaining power. 

“Even where the parties are large commercial concerns and of equal bargaining strength as regards the price to be paid under the contract, that does not mean that they are of equal bargaining strength in respect of the terms. A supplier may be willing to negotiate the unit price, but will only supply on its standard terms, a position taken by all other suppliers in the market. That crucial distinction must, in my judgment, be borne in mind …”.

The CA found it was obvious that Dawson would not have contracted without the exclusion clause and the fact that there were no materially different terms available in the market should have contributed to the conclusion (at least arguably) that the parties were not of equal bargaining strength as regards clause 5(b). 

The starting point for the court of first instance should have been that clause 5(b), contained in standard terms of business, purported to exclude any and all liability for the quality of the coaches supplied to Last Bus, leaving Last Bus without a remedy even if it received no value at all while having to pay for the hire. Prevailing caselaw made it clear that such clauses are prima facie unreasonable under UCTA 1977.

Why is this important?

It highlights a more nuanced approach to assessing UCTA 1977 reasonableness and whether parties are of equal bargaining power.

Any practical tips?

When contracting on standard terms, consider whether the parties on an equal footing as regards those terms and are other terms available in the market. Also consider whether there is any other remedy available, eg an alternative (limited) warranty in substitution for any excluded implied warranties or conditions. 

Consider whether insurance is available/ should be obtained by the customer against the excluded risk (and if the contract should contain an appropriate recital/ acknowledgement to that effect). That may also be relevant to an effective allocation of risk and support arguments that the parties are of equal bargaining strength.

Winter 2023