Exclusion clauses, reasonableness and freedom of contract


Author: Leigh Callaway


Leigh Callaway, Senior Associate, Fladgate LLP (lcallaway@fladgate.com)


 

Following a fire at its premises, Goodlife Foods Limited (Goodlife) commenced proceedings against Hall Fire Protection Limited (Hall Fire) for breach of contract and/or negligence in the supply and installation of a fire suppression system. In its defence Hall Fire sought to rely on an exclusion of liability clause contained within its standard terms and conditions. That term provided as follows:

We exclude all liability, loss, damage or expense consequential or otherwise caused to 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 whatever reason. In the case of the faulty components, we include only the replacements, free of charge, for those defective parts. As an alternative to our basic tender, we can provide insurance to cover the above risk. Please ask for the extra costs of provision of this cost if required.

In dismissing the appeal, the Court of Appeal considered the following issues:

  • Was the exclusion clause particularly unusual or onerous?
  • Even if it was, was it fairly and reasonably brought to the attention of Goodlife?
  • Was the exclusion clause unreasonable (and therefore ineffective) as a result of the operation of the Unfair Contract Terms Act 1977 (UCTA)?

The court held that the question of whether the exclusion clause was particularly onerous or unusual must be considered in the context of the contract as a whole. Here Hall Fire had provided an installation service under a one-off supply agreement for a modest sum many years before and, other than a limited warranty, had no obligations or any other connection with the premises after installation. It was therefore neither particularly unusual nor onerous for Hall Fire fully to protect itself against the possibility of unlimited liability arising from future events.

As to whether the exclusion clause was fairly and reasonably brought to the attention of Goodlife, the court held that the judge at first instance was “plainly right” and that the clause was not “buried away in the middle of a raft of small print … it was one of the standard conditions which were expressly referred to on the front of the quotation and which were printed in clear type”. Moreover, it was never suggested by Goodlife that it did not read the terms or understand them.

Finally, as to the question of whether the exclusion clause was unreasonable by virtue of UCTA, the Court felt that the clause was reasonable. When a party seeks to restrict liability for negligence, that limitation is only permissible “in so far as the term or notice satisfies the requirement of reasonableness”. “Reasonableness” means that the relevant term “shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made”. In assessing those circumstances, the court held inter alia that: (1) the parties were broadly equal in bargaining positions; (2) Goodlife received no inducement and could have gone elsewhere to find a supplier who was prepared to contract on less stringent terms; (3) notice of the term was properly given; and (4) Goodlife could have obtained appropriate insurance in respect of the losses suffered.

Whereas the reasons for upholding the exclusion clause were specific to this case, the court of Appeal’s judgment serves as a useful reminder that the court will be slow to interfere in contractual relations, particularly between parties of equal bargaining power. The court stressed in particular that “an important pillar of English common and commercial law is party autonomy” and “even where UCTA is applicable, at least in the case of commercial contracts between parties of broadly equal bargaining power, considerations of party autonomy and freedom of contract remain potent.

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