UK: The Limits On Limited Liability, Real Estate Intelligence

Last Updated: 10 October 2013
Article by Nick Roberts
Clauses which seek to limit or exclude liability for loss can be a sensible way of allocating risk and are frequently used within contractual documentation. However, disputes frequently arise as to whether such clauses are enforceable. Whether or not an exclusion/limitation clause is enforceable will often have a very significant impact on the amount of damages that can be recovered and such clauses need to be clearly communicated and very carefully drafted if they are to be enforceable.

The parties to contract will often seek to exclude or restrict their liability to one another in the event of default. Such exclusions can take a number of forms, with some clauses seeking to exclude liability altogether. Others put a limit on liability, perhaps by capping the amount payable in damages on a breach, restricting the types of loss recoverable or the remedies available or imposing a short time limit for claims. In these circumstances, the general principle of freedom of contract must be balanced against concerns that a party who freely undertakes a binding contractual obligation should not be equally free to absolve itself from its duty to perform. To help strike this balance, English law has developed a mix of statutory rules and case law which must be taken account of when drafting, negotiating or reviewing these clauses. Two recent cases have considered the enforceability of such limitation clauses, with markedly different results.

The case of Allen Fabrications Limited -v- ASD Limited [2012] EWHC 2213 (TCC) involved a rigid steel platform for boats which incorporated a grating, part of which had been supplied by ASD to Allen. The grating collapsed and an employee suffered debilitating head injuries as a result. Allen claimed that the fixings supplied by ASD for the grating did not comply with their description, were too few in number, were not of satisfactory quality or fit for their purpose and that ASD had also breached a duty of care in tort. In defence of Allen's claim, ASD sought to rely on the exclusion and limitation clauses in its standard terms, whilst Allen attempted to argue that the exclusion clauses in ASD's standard terms were not incorporated into the contract between the parties because they were onerous and unusual and, therefore, terms which ASD should have specifically drawn to Allen's attention.

The court acknowledged that where terms and conditions contain an onerous or unusual clause, a party will not be bound by the clause unless it has been specifically brought to its attention. However, the court also stressed that whether a clause is onerous or unusual depends on the context since if a particular type of clause is in common use, it is less likely to be regarded as onerous as between two commercial parties. In this case, Allen's managing director gave evidence that he knew ASD's terms would have exclusion clauses in them, as this was common practice within their industry. In this context, the court did not view ASD's exclusion clauses as onerous or unusual and accordingly ASD had no duty to draw those particular clauses to Allen's attention and they were incorporated into the contract. It was also relevant that Allen had already previously dealt with ASD on numerous occassions.

The court then considered whether the clauses could be classed as "unreasonable" within the meaning of the Unfair Contract Terms Act 1979 ("UCTA"). UCTA provides that a term included in written standard terms of business cannot limit or exclude liability unless the term satisfies the requirement of reasonableness. The burden of proving that a term is reasonable is on the party seeking to rely on the term (ASD, in this instance) and when considering the reasonableness of a term, the following factors are relevant: (i) the circumstances known to the parties when the contract was made; (ii) the strength of the bargaining position of the parties; and (iii) whether the party arguing the term does not apply knew or ought reasonably to have known of the existence and extent of the term.

The fact that Allen had appropriate insurance cover in place was critical to the finding that ASD's limitation clause was fair and reasonable as the court held that the insurance cover was one of the ways in which Allen protected itself against the recognised risk of buying goods from suppliers who include limitation clauses in their standard terms and conditions. It would have been highly unlikely that Allen would be able to negotiate different terms with ASD, at least not without a substantial increase in the price of the goods. The clauses did not create a blanket exclusion of liability because ASD did offer to refund the purchase price when there were defects. It was not unreasonable for ASD to limit liability to the price of the goods because in many cases ASD supplied goods of a much higher value than the ones in this case and the court found that the exclusion and limitation clauses were reasonable.

In Trustees of Ampleforth Abbey Trust v Turner and Townsend Project Management Limited 2012 EWHC 2137 (TCC), Turner & Townsend Project Management (TTPM) were employed as project manager by the Trust on a project to provide new boarding accommodation for the Ampleforth College. TTPM's Appointment contained a clause limiting its liability to the amount of fees payable to TTPM (£111,321). The Trust argued that the limitation of liability clause was unreasonable under UCTA, whilst TTPM argued that the terms of the limitation of liability clause were clear and unambiguous, and that as the parties had equal bargaining power they should be allowed to apportion risk between themselves as they see fit.

The court decided that even though the limitation clause was plain to read and understand, it was nevertheless unreasonable. The reasoning in this case was based primarily on the fact that the terms of TTPM's Appointment required it to maintain professional indemnity insurance cover of £10 million with the costs of obtaining the insurance cover presumably being passed onto the Trust. It was unreasonable to deny the Trust of the benefit of £9 million of that cover. The court also reasoned it was wrong for TTPM, after having built up a relationship of trust over two previous projects, to seek to introduce such a draconian term without specific notice or any discussion.

As these cases demonstrate, whether or not an exclusion/limitation clause is enforceable will often have a very significant impact on the amount of damages that can be recovered. In Allen, it was effectively unable to claim against ASD, whereas in the Turner & Townsend case, TTPM's liability to the Trust was far greater than it had anticipated. There are some important lessons to remember here: (i) it is essential to ensure that onerous limitation or exclusion clauses are brought to the other party's attention; (ii) the reasonableness of clauses will often be judged by what is generally accepted within the relevant industry, a fact which should be borne in mind if you are considering incorporating a clause which is much stricter than usual; and (iii) insurance is always an important factor in determining the reasonableness of a clause, since both courts in these cases considered that the parties' ability to protect themselves with insurance was key.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions