Case Facts & Preliminary Law
This appeal to the Court of Appeal concerned the exclusion or limitation of liability in commercial contracts and the ‘reasonableness’ test pursuant to the Unfair Contract Terms Act 1977 (“UCTA”).
The appellant, Goodlife, had entered into a contract with the respondent, Hall Fire, for the installation of a fire suppression system at their factory premises. At the time of the contract, both parties had their own respective insurance. Hall Fire had their own standard terms and conditions, which they sent with a quotation to Goodlife, upon request in early 2001. The quotation clearly stated that Hall Fire could provide insurance for the liability excluded in their standard terms and conditions if requested. Clause 11 of the standard terms and conditions sought to exclude all liability as a result of Hall Fire’s negligence. This, coupled with the incorporation of Hall Fire’s standard terms and conditions, meant that the contract was subject to UCTA.
The three questions for the Court to determine were first, whether the exclusion clause was onerous or unusual, second, whether the clause was fairly and reasonably brought to the attention of Goodlife, and third, whether the clause was reasonable subject to UCTA.
In order to determine whether the exclusion clause was too onerous or unusual, the Court contemplated and applied various authorities on the matter. In Allen Fabrications Limited v ASD Limited  EWHC 2213 (TCC), Judge Waksman QC stated that ‘the mere fact that the clause in question is a limitation or exclusion clause does not of itself mean that it is onerous or unusual’ and that the clause should be considered in context of the contract as a whole. In Watford Electronics Ltd v Sanderson CFL Ltd  EWCA Civ 317 and Regus (UK) Ltd v Epcot Solutions Ltd  EWCA Civ 361, the Court held that the exclusion of any indirect or consequential losses was reasonable and not in fact onerous or unusual.
Although counsel for the appellant submitted that Clause 11 was a ‘blanket exclusion clause’, the Court found this to be inaccurate. The Court noted that in this case, the contract was for a one-off supply and there were no insurance obligations on Hall Fire, as their offer was not pursued by Goodlife. Additionally, ‘as a matter of commercial reality there was very little difference between Hall Fire’s exclusion clause and other clauses available on the market’. With these factors in mind, the Court concluded that Clause 11 was neither onerous or unusual.
With regards to the second question, the Court stated that Clause 11 would not have been incorporated into the contract if it was ‘particularly unusual and onerous’ as well as ‘not fairly and reasonably drawn to the attention’ of Goodlife”. This exclusion clause was a standard condition, which was expressly referred to and printed clearly on the front of the quotation. Moreover, Goodlife had over a year between when the quotation was sent, and when they entered into the contract. With this in mind, Goodlife had sufficient time to seek advice and at no point suggested that they did not read or understand the terms and conditions. Subsequently, the Court determined that Clause 11 had been fairly and reasonably drawn to the attention of Goodlife, and therefore, was incorporated into the contract.
The third and final question was whether Clause 11 was reasonable in accordance with UCTA. The guidance for the reasonableness test is set out in section 11 UCTA, with reference to Schedule 2 UCTA. This contains considerations such as the resources available to the parties, the availability of insurance and the strength of the bargaining positions of the parties. Further authority has been provided in Watford Electronics Limited v Sanderson CFL Limited, where the court held that “unless satisfied that one party has, in effect, taken unfair advantage of the other – or that a term is so unreasonable that it cannot properly have been understood or considered – the court should not interfere”.
On the facts, the parties had equal bargaining powers, notice was fairly given, Goodlife received no inducement to agree to Clause 11 and could have easily contracted elsewhere. Additionally, in consideration of the circumstances, the Court found that insurance was a highly relevant factor in this case. The Court sought to determine which party was ‘best placed to effect the necessary insurance’. It was concluded that Goodlife were in fact in a much better position to insure against their likely losses than Hall Fire. This, in conjunction with the fact that Hall Fire had drawn attention to their exclusion of liability, and had offered to arrange insurance, meant that Clause 11 was reasonable subject to UCTA. Consequently, the Court held that overall Clause 11 was valid and enforceable.
The principle of autonomy in English contract law was re-emphasised. The judgement suggests that the Courts will refrain from interfering with the contract bargained, unless they are satisfied that the principle in question is either erroneous or obviously wrong. The term ‘reasonableness’ should be taken to mean ‘a principle of fair and open dealing’ and when determining whether a clause is reasonable pursuant to UCTA, it is important to consider each factor in all the circumstances to reach a just outcome.
Riya Sharma – Trainee Solicitor
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