The two principal statutes dealing with contractual exclusion clauses are the Unfair Contract Terms Act 1977 and the Consumer Rights Act 2015.
(1) A person cannot by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict his liability for death or personal injury resulting from negligence.
(2) In the case of other loss or damage, a person cannot so exclude or restrict his liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness.
(3) Where a contract term or notice purports to exclude or restrict liability for negligence a person’s agreement to or awareness of it is not of itself to be taken as indicating his voluntary acceptance of any risk.
(1A) Liability for breach of the obligations arising from –
(a) section 13, 14 or 15 of the [Sale of Goods Act 1979] (seller’s implied undertakings as to conformity of goods with description or sample, or as to their quality or fitness for a particular purpose) . . .
cannot be excluded or restricted by reference to a contract term except in so far as the term satisfies the requirement of reasonableness.
(1) This section applies as between contracting parties where one of them deals . . . on the other’s written standard terms of business.
(2) As against that party, the other cannot by reference to any contract term –
(a) when himself in breach of contract, exclude or restrict any liability of his in respect of the breach; or
(b) claim to be entitled –
(i) to render a contractual performance substantially different from that which was reasonably expected of him, or
(ii) in respect of the whole or any part of his contractual obligation, to render no performance at all,
except in so far as (in any of the cases mentioned above in this subsection) the contract term satisfies the requirement of reasonableness.
C brought a claim to enforce a debt of around $150m which it claimed D owed it under a finance agreement. In its defence and counterclaim, D alleged that it had claims against C amounting to some $1bn and that it was entitled to set off these amounts against the sum claimed by C. In response C sought to rely on a clause in the finance agreement which provided that all payments due under the agreement were to be made without set-off or counterclaim. D argued that, by reason of s 3 of UCTA, this clause would only be valid if it satisfied the requirement of reasonableness under s 11 of UCTA. The judge gave summary judgment for C on the ground that D did not have a realistic prospect of establishing at trial that it had been dealing on C’s written standard terms of business and, that as such, the clause was not subject to the requirement of reasonableness under s 3 UCTA. The CA dismissed D’s appeal.
Longmore LJ (with whom Henderson LJ agreed):
‘[18] Before the Act can be held to apply and require an inquiry into the reasonableness of any particular term, the party relying on the Act must establish . . . that: (i) the term is written; (ii) the term is a term of business; (iii) the term is part of the other party’s standard terms of business; and (iv) that the other is dealing on those written standard terms of business.’
‘[20] The third requirement that the term is part of the other party’s standard terms of business means that it has to be shown that that other party habitually uses those terms of business. It is not enough that he sometimes does and sometimes does not. Nor is it enough to show that a model form has, on the particular occasion, been used; the party relying on the Act has to show that such model form is habitually used by the other party.’
‘[21] The fourth requirement is that the deal must be done on the written standard terms of business. That raises the question whether the Act applies in cases where there has been negotiation between the parties the result of which is that some but not all the standard terms are applicable to the deal . . .’
[25] ‘it is relevant to inquire whether there have been more than insubstantial variations to the terms which may otherwise have been habitually used by the other party to the transaction. If there have been substantial variations, it is unlikely to be the case that the party relying on the Act will have discharged the burden on him to show that the contract has been made “on the other’s written standard terms of business”.
[36] ‘There is . . . no requirement that negotiations must relate to the exclusion terms of the contract, if the Act is not to apply.’
(1) In relation to a contract term, the requirement of reasonableness for the purposes of this Part of this Act . . . is that the 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.
(2) In determining for the purposes of section 6 . . . above whether a contract term satisfies the requirement of reasonableness, regard shall be had in particular to the matters specified in Schedule 2 to this Act; but this subsection does not prevent the court or arbitrator from holding, in accordance with any rule of law, that a term which purports to exclude or restrict any relevant liability is not a term of the contract.
The matters to which regard is to be had in particular for the purposes of [section 6(1A)] are any of the following which appear to be relevant-
(a) the strength of the bargaining positions of the parties relative to each other, taking into account (among other things) alternative means by which the customer’s requirements could have been met;
(b) whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons, but without having to accept a similar term;
(c) whether the customer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties);
(d) where the term excludes or restricts any relevant liability if some condition is not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable;
(e) whether the goods were manufactured, processed or adapted to the special order of the customer.
In 2002, GF entered into a contract with HFP for the supply of a fire detection and suppression system for a multi-purpose fryer which GF used in its food factory. The contract price was £7,490. GF claimed that in 2012 a fire broke out in the fryer because of a defect in the suppression system. GF claimed that the fire caused substantial property damage and loss of business amounting to around £6m. GF conceded that any claim based on breach of contract was time-barred under the Limitation Act 1980. However, GF proceeded with a claim in negligence.
In defending the claim HFP sought to rely on an exclusion clause, Clause 11, which it claimed had been incorporated into the contract with GF.
Clause 11 provided:
‘We exclude all liability, loss, damages 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. In the case of faulty components, we include only for the replacement, free of charge, of those defected parts. 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.’
On a preliminary issue, the judge held that the exclusion clause was not particularly unusual or onerous and had been reasonably and fairly drawn to GF’s attention before the contract was made. The judge further held that the clause satisfied the requirement of reasonableness under s 11 UCTA.
The CA dismissed GF’s appeal.
‘[I]t is certainly right . . . that the trend in the UCTA cases decided in recent years has been towards upholding terms freely agreed, particularly if the other party could have contracted elsewhere and has, or was warned to obtain, effective insurance cover.’ (Coulson LJ at [93]).
‘It may be noted that decisions, as to whether a particular clause is “reasonable” within the meaning of UCTA, or whether, having regard to the nature of the exclusion or limitation of liability clause in question, adequate notice has been given, are evaluative in character. Accordingly, a reluctance to interfere with bargains made by commercial parties is accentuated in an Appellate Court by the consideration that this Court “. . . should treat the original decision with the utmost respect and refrain from interference with it unless satisfied that it proceeded upon some erroneous principle or was plainly and obviously wrong”: Lord Bridge of Harwich, in George Mitchell (Chesterfield) Limited v Finney Lock Seeds Limited [1983] 2 AC 803 at 816.’ (Gross LJ at [105]).
The 2015 Act applies to certain types of contracts made between traders and consumers. According to section 2:
• a trader is ‘a person acting for purposes relating to that person’s trade, business, craft or profession, whether acting personally or through another person acting in the trader’s name or on the trader’s behalf’.
• A consumer is ‘an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession’.
The main provisions concerning exclusion clauses are as follows:
(1) A trader cannot by a term of a consumer contract or by a consumer notice exclude or restrict liability for death or personal injury resulting from negligence.
(1) A term of a contract to supply services is not binding on the consumer to the extent that it would exclude the trader’s liability arising under section 49 (service to be performed with reasonable care and skill).
(3) A term of a contract to supply services is not binding on the consumer to the extent that it would restrict the trader’s liability arising under [section 49] . . . if it would prevent the consumer in an appropriate case from recovering the price paid or the value of any other consideration. (If it would not prevent the consumer from doing so, Part 2 (unfair terms) may apply.)
(1) An unfair term of a consumer contract is not binding on the consumer.
(4) A term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.
(5) Whether a term is fair is to be determined –
(a) taking into account the nature of the subject matter of the contract, and
(b) by reference to all the circumstances existing when the term was agreed and to all of the other terms of the contract or of any other contract on which it depends.
(1) A term of a contract to supply goods is not binding on the consumer to the extent that it would exclude or restrict the trader’s liability arising under any of these provisions –
(a) section 9 (goods to be of satisfactory quality);
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