Welcome guidance on terms and conditions in business to business supply contracts

27 Apr 2017

The TCC case of Goodlife Foods Ltd v Hall Fire Protection Ltd [2017] EWHC 767 (TCC) provides some welcome further guidance of the circumstances in which the TCCs will consider a clause purporting to exclude liability in a supply contract to be reasonable.

The facts of the case
H supplied a fire suppression system to G in 2002 which, some 10 years later, failed to prevent a fire in G’s industrial frying machine. Any contractual claim was statute barred and so the claim was brought in negligence.  H sought to rely on a clause in its standard terms and conditions which purported to exclude any claim in negligence.
The TCC first considered whether H’s terms and conditions had been incorporated into the contract. It concluded that they had been incorporated by H sending a quotation stating that its terms and conditions would apply and by attaching a copy of those terms and conditions. Further, the TCC rejected G’s argument that the particular clause in question (discussed further below) was not incorporated because it was particularly onerous and unusual and was not itself brought fairly and reasonably to G’s attention.  It was relevant that the opening words 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.”
The relevant clause could be separated into three parts as follows:
1. “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 whatever reason.”
2. “In the case of faulty components, we include only for the replacement, free of charge, of those defective parts.”
3. “As an alternative to our basic tender, we can provide insurance to cover the above risks. Please ask for the extra cost of the provision of this cover if required.”
The decision
The TCC made the following findings in respect of this clause:
1. Part 1 purported to exclude liability for personal injury or death (in that it refers to “damage … to your … persons”) which is not permitted by virtue of section 2(1) of the Unfair Contract Terms Act 1977;
2. However, despite this, the TCC did not agree that the above rendered the clause as a whole unreasonable.  If part of a clause is ineffective the remainder of the clause can nevertheless be upheld as reasonable, per Trolex Products Limited v Merrol Fire Protection Engineers Ltd (20 November 1991); and
3. The TCC went on to find that the remainder of the clause was reasonable in accordance with section 3 of the Unfair Contract Terms Act 1977 taking into account the following:
a. The parties were of roughly equal bargaining power;
b. G could have sought a fire suppression system elsewhere;
c. H had drawn G’s attention to the fact that G ought to protect itself against the risk of the fire suppression system not working and it offered to arrange insurance for this risk for an extra payment; and
d. In Part 2 H undertook to make good defects, which was something of real value to G.

The TCC took the view that the terms and conditions imposed a perfectly sensible allocation of the risk in the circumstances and, as such, the parts of the clause that were permitted were reasonable and thus effective to exclude the alleged liability for negligence.
As an aside, G also applied for permission to amend its statement of case to include 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 (the 1994 Regulations).  H argued that this claim had no reasonable prospect of success since (1) the claim was statute barred by the 10 year long stop applicable to CPA claims and (2) the fire suppression system was not ‘electrical equipment’ for the purpose of the 1994 Regulations. 

As to (1), the court found it was at least reasonably arguable that any proposed claim for breach of statutory duty under the CPA and the 1994 Regulations was not limitation barred. As for (2), whilst commenting that there is no direct authority on the definition of what constitutes ‘electrical equipment’, the court agreed that the fire suppression system was not electrical equipment, and it therefore dismissed G’s application to amend its claim based on this. However, the court could not rule out that some other more limited and focussed claim for breach of statutory duty based on the CPA and the 1994 Regulations might be at least reasonably arguable, and so it gave G a further opportunity to amend its claim.

What this means for you
Disputes can often arise in the context of business to business contracts as to the incorporation and reasonableness of the parties’ terms and conditions. Cases tend to be decided on their own facts and the factors that a court can take into account are so numerous that cases are seldom alike. Having said that, it is possible to draw out some guidance from the case law and, in carrying out this exercise, Goodlife Foods is a welcome addition to existing authorities.

The question of incorporation was ultimately relatively straightforward: the terms and conditions had been referred to in a quotation and a copy was attached; there was no competing terms and conditions (or ‘battle of the forms’) as can often be the case; and, perhaps unusually, H had drawn specific attention to the effect of the relevant clause in the opening words of the terms and conditions.

As to reasonableness of the relevant clause, we know already that courts can be reluctant to interfere in business to business contracts, particularly where the parties are of equal bargaining strength – as they were in Goodlife Foods.  Further, Goodlife Foods serves as a reminder that factors such as the extent to which the risks were drawn to relevant party’s attention and the availability of insurance for those risks can also be very relevant.

It is well established that clauses that merely limit liability are more likely to be considered reasonable as opposed to blanket exclusions which are rarely considered reasonable; and it is notable that the relevant clause in Goodlife Foods did not seek to limit H’s liability completely in that it undertook to make good any defects which was a small concession but still considered by the TCC to be of real value to G.

Daniel West

Associate, 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 clients of BLM. Specialist legal advice should always be sought in any particular case.

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