Product Liability Update: Don’t get burnt by exclusion clauses in business to business supply contracts

25 Jun 2018

BLM last reported on the case of Goodlife Foods Ltd v Hall Fire Protection Ltd [2017] EWHC 767 (TCC) in April 2017; for the previous article click here. The dispute involved the supply of a fire suppression system by H to G in 2002 which, some 10 years later, failed to prevent a fire in G’s industrial frying machine. The court concluded that H could rely on an exclusion clause in the contract to avoid liability for property damage and business interruption losses caused by the fire which had been put at over £6 million. We said the judgment provided welcome guidance as to the circumstances in which the court will consider a clause purporting to exclude liability in a supply contract to be reasonable. 

G subsequently appealed. 

Appeal decision

In dismissing the appeal, the Court of Appeal’s decision [2018] EWCA Civ 1371 reaffirms the guidance given by the TCC, namely:

1. The clause was incorporated into the contract between H and G because:

a. It had been referred to in H’s quotation and a copy was attached; and there were no competing terms and conditions;
b. It was not in fact a ‘blanket exclusion’ clause, since a warranty was provided separately and , as such, it was akin to one in which the supplier’s liability is limited to the contract price;
c. It was not unusual or onerous when considered in context; indeed, the mere fact that a clause is a limitation or exclusion clause does not in itself mean that it unusual or onerous;
d. In any event, even if it had been unusual or onerous, it was brought fairly and reasonably to the attention of G and, in particular, the opening words of section 4 of the terms and conditions alerted the reader to the fact that they “do not provide for the imposition of any form of damages whatsoever”.  (Other factors which may be relevant to incorporation include the size of the font used, the legibility of the text and the use of headings.)

2. The clause was reasonable in accordance with Section 2 of Unfair Contract Terms Act 1977 (“UCTA”) primarily because:

a. The parties were of broadly equal bargaining power;
b. G could have sought an alternative supplier;
c. Notice was fairly and reasonably given;
d. Insurance cover was offered as an alternative to the risks created by the clause.

In general, the Court of Appeal considered it an entirely reasonable allocation of the risks that H should not have an open-ended liability for events that happened a decade or more after the creation of the contract which had been worth only £7,490.

What this means for you

In giving this decision, the Court of Appeal supports the recent trends in UCTA cases that freely agreed terms between businesses ought to be upheld and that clauses which limit a supplier’s liability to the (often modest) amount of the contract price are not to be regarded as particularly unusual or onerous.

The decision provides further examples as to the kinds of factors that practitioners can consider in determining if a clause is unusual or onerous and/or unreasonable, such as the format of the terms and conditions (including font size, legibility, etc.), any particular warnings drawing a party’s attention to the particular clause (or advising a party to obtain insurance), the respective bargaining positions of the parties and whether or not the purchaser could have gone elsewhere.

On another note, the original case had also dealt with the potential for a claim for breach of statutory duty under section 41(1) of the Consumer Protection Act 1987 (CPA) and paragraph 14 of the Electrical Equipment (Safety) Regulations 1994.  Businesses, as opposed to consumers, cannot typically bring CPA claims by virtue of Section 5(3) which excludes claims for damage to property which is not intended for private use.  However, Section 5(3) (perhaps as a result of a drafting oversight) does not appear to apply to Section 41 which permits civil claims in respect of breaches of safety regulations.  (Such a claim was also pursued in Howmet Limited v Economy Devices Limited and Others [2016] EWCA Civ 847.)  In the present case, G was not permitted to pursue such a claim because it was not thought that the fire suppression system constituted electrical equipment within the meaning of the Regulations.  Perhaps disappointingly, G was not granted permission to appeal this element of the claim and so as yet there is no further judicial guidance on the matter.

Authored by Daniel West, an associate with BLM

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Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to customers of BLM. Specialist legal advice should always be sought in any particular case.

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Jim Sherwood

Jim Sherwood

Partner,
London


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