The Court of Appeal has recently delivered an important ruling, overturning a decision of the High Court in Regus (UK) Limited v. Epcot Solutions Limited.
Under the Unfair Contract Terms Act 1977 (UCTA) a term by which a seller seeks to exclude or limit its liability for a subsequent breach of contract is only to be enforceable, where the contract has been agreed on the seller’s standard terms of business, if it is deemed to be reasonable. That reasonableness test is set out in UCTA and a term must be fair and reasonable to have been included in the contract in the circumstances as known by the parties at the time of making the contract. In particular regard will be had in such situations to the factors listed in Schedule 2 of UCTA which include the strength of the party’s bargaining positions, whether there was any inducement to agree to the term and whether the customer knew or ought to reasonably to have known of the existence of the term.
The High Court had held the exclusion clause in Regus’ standard terms of business to be unreasonable and consequently unenforceable under UCTA. That clause sought to exclude liability for all financial loss incurred by the purchaser as a result of a failure by the seller stating “we will not in any circumstances have any liability for loss of business, loss of profits, loss of anticipated savings, loss of or damage to data, third party claims or any consequential loss. We strongly advise you to insure against all such potential loss, damage expense or liability”. This decision potentially called into question the effectiveness of the vast majority of suppliers standard exclusion clauses.
The High Court had held that there was a breach of contract and the exclusion clause in question was not reasonable because, whilst in principle a restriction of damages for the loss of profits and consequential losses was reasonable, the clause in question deprived the Claimant of any remedy at all and accordingly was unenforceable.
The Court of Appeal has however overturned the High Court’s decision confirming that such clause was reasonable because it was wrong to say that this clause left the customer without any remedy at all. Fundamentally it did not exclude a breach of contract claim for the most basic and straight forward measure of loss; standard contractual damages. The Court of Appeal reiterated the basis upon which Courts have upheld exclusion clauses in recent years: that the contract had been extensively negotiated by intelligent and experienced businessmen and the terms agreed accordingly. Further there was no inequality of the bargaining positions and no special protection was required to level the playing field between the parties.
The Court of Appeal’s decision comes as a relief to many suppliers however they must be aware an exclusion of consequential financial loss and loss of profits will not always be reasonable and will depend on the circumstances of an individual case. Accordingly advice should always be sought as to whether a clause will be enforceable or not in litigation.
For further information or advice, please contact
Daniel Jennings.
