UK: Challenging Exclusion Clauses Under UCTA: A Cautionary Tale

Last Updated: 27 June 2017
Article by Perran Jervis
Most Read Contributor in UK, July 2017

The Technology and Construction Court has recently held that an exclusion clause purporting to exclude any claim in negligence was reasonable under the Unfair Contract Terms Act 1977 (UCTA).

The decision provides useful clarification on the circumstances under which a broadly-drafted exclusion clause might be considered to be reasonable even if a part of it is deemed invalid under UCTA. It also highlights the importance of identifying potential areas of risk under a contract and considering how these should be covered by insurance.

Goodlife Foods Limited v Hall Fire Protection Limited: the facts

Goodlife, a producer of vegetarian meals, entered into a contract with Hall Fire for the design, supply, installation and commissioning of a fire suppression system at Goodlife's food production factory. In 2012, a fire broke out at the premises which led to property damage and business interruption losses of over Ł6 million.

Goodlife issued a claim in negligence against Hall Fire contending that the fire occurred as a result of a failure of the fire suppression system. Hall Fire sought to rely on an exclusion clause in its standard terms and conditions which excluded all liability for any claim in negligence. The terms also acknowledged that Hall Fire could provide insurance in the event of loss or damage should the fire suppression system fail at an extra cost.

The court was asked to determine (among other issues) whether the exclusion clause was incorporated into the contract and whether it was reasonable under UCTA.

Was the exclusion clause incorporated in the contract?

Goodlife claimed that the clause was unusual and onerous and was not brought to its attention sufficiently to be incorporated into the contract.

The court held that the clause was not particularly unusual and onerous. The court considered that it is common for companies in the fire protection industry to rely upon some form of exclusion or limitation of liability. There was no substantial difference between the broad-ranging exclusion clause in question and a more typical limitation of liability term seeking to limit liability to a specified amount.

The court also found that Hall Fire had taken reasonable steps to draw Goodlife's attention to the exclusion clause. Wording stated that the terms and conditions "do not provide for the imposition of any form of damages whatsoever". According to the court, there was no evidence suggesting that Goodlife was in a weak bargaining position or did not have access to legal or insurance advice. It, therefore, was in a position to review the terms and conditions of the contract and to consider ways of obtaining insurance against such a risk.

Exclusion of liability for death and personal injury

Goodlife submitted that the exclusion clause was unreasonable because it attempted to exclude liability for death and personal injury and as such, it was ineffective pursuant to section 2(1) of the UCTA.  

The court accepted Goodlife's argument that the clause in question intended to exclude Hall Fire's liability for death and personal injury resulting from Hall Fire's negligence. However, it was bound by the case of Trolex Products Limited v Merrol Fire Protection Engineers limited (unreported) where the Court of Appeal held that even if a contract term is rendered ineffective because it contravenes section 2(1) of the UCTA, the remainder of the term may still be considered to be reasonable.

As a consequence, it was held that the ineffective exclusion of liability for death and personal injury did not affect the validity of the remainder of the clause.

Unreasonableness on other grounds: scope of the exclusion clause

Goodlife also contended that the clause was unreasonable because its scope was so wide that it deprived Goodlife of any recourse in the event of a failure of the fire suppression system.

The court accepted that the clause sought to exclude virtually all of Hall Fire's liability for loss or damage suffered by Goodlife in the event of a failure of the fire suppression system. However, it considered that "the only likely loss would result from a fire not being prevented by the fire suppression system, in respect of which the customer almost certainly would and certainly should be covered by insurance anyway".

In other words, if there was a fault in the fire suppression system which was undetected, Goodlife would be exposed to the risk of a fire which the system provided by Hall Fire had failed to suppress. If such an event were to occur, Goodlife would (or should) be covered for this type of loss or damage by means of insurance.

Other cases that Goodlife sought to rely on (including Balmoral Group Limited v. Borealis (UK) Limited [2006]) were distinguished by the court on the basis that the customer was required to abandon its right of protection and the loss or damage suffered could not be adequately covered by insurance. In those cases the loss or damage incurred would be better managed by the supplier. In this case Goodlife "was in the best position to know what level of cover it reasonably needed" and the parties were considered by the court to be of "broadly equal size and bargaining power".

Key considerations

The decision provides helpful guidance on the approach the courts may take when called to consider the reasonableness of a wide-ranging exclusion clause. This approach highlights that such an exclusion clause may nevertheless be considered to be reasonable even if a part of it is ineffective because it is invalid under UCTA.

The judgment also highlights how important it is for parties to a contract to carefully review the terms and conditions which apply to their specific deal, particularly when dealing with exclusions or limitations of liability. Key areas of risk should be identified and additional insurance cover sought if appropriate. 

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.

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