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Court considers proper construction and enforceability of exclusion clause under UCTA

Goodlife Foods Ltd v Hall Fire Protection Ltd is a decision of HHJ Stephen Davies (sitting as a High Court judge) on a preliminary issue relating to the proper construction and enforceability of an exclusion clause under the Unfair Contract Terms Act 1977 (UCTA). It was also a decision on an application for permission to amend turning on the meaning of “electrical equipment” under the Electrical Equipment (Safety) Regulations 1994 (the 1994 Regulations) (but I’m not going to look at this point).

Goodlife Foods Ltd v Hall Fire Protection Ltd

It was probably a little later than bluebell time in May when a fire broke out in an industrial frying machine at Goodlife’s factory in Warrington in 2012. The fire was caused by a failure or malfunction in a fire suppression system that had been designed and installed by Hall Fire in 2002, some ten years earlier. Goodlife claimed that the fire caused property damage and business interruption losses in excess of £6 million, but proceedings were not issued against Hall Fire until 2016.

It was common ground that the claim in contract was time barred. Goodlife also claimed in negligence. It was common ground that the cause of action in tort accrued on the date of the fire (when the damage was caused), and therefore that claim was in time.

The preliminary issue related to clause 11 of Hall Fire’s standard terms and conditions, which Hall Fire said was effective to exclude the claim in negligence. As in all cases dealing with exclusion clauses, the precise terms of the clause are important and this one provided as follows:

“(11) 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. In the case of faulty components, we include only for the replacement, free of charge, of those defective parts…”

These terms were accurately described by Hall Fire’s managing director as “tight”.

Incorporation

The first issue was whether Hall Fire’s standard terms were incorporated into the contract, which involved a classic “battle of the forms“. The parties both suffered from the usual problems in relation to documents concerning old contracts. Neither side could demonstrate precisely which documents had been sent or received (including the terms and conditions themselves) and, in one case, the existence of the document in question was itself only known because it was referred to in a later document (the purchase order from Goodlife). Both parties called witness evidence in an attempt to make good these deficiencies.

On the facts, the judge found that Goodlife’s purchase order was an acceptance of the original quotation that had been sent together with the terms. Therefore, he said that he did not have to deal with the more difficult question of whether the reference on the face of the quotation to Hall Fire’s terms would have been sufficient by itself to incorporate them. He said that he would have found that it was not, because there was no information as to where a copy of the terms could be obtained.

Having found that the terms were incorporated, the next issues were:

  • Was clause 11 so onerous and unusual that it was not incorporated as insufficient notice was given of that specific clause?
  • Was clause 11 as a whole unreasonable under UCTA because it purported to exclude liability for personal injuries?
  • Was clause 11 unreasonable under UCTA disregarding the purported exclusion of liability for personal injuries?

Onerous and unusual

Goodlife submitted that, on its proper construction, clause 11 purported to exclude civil liability both for fraud and for personal injuries.

The judge had no difficulty in holding that the words “for whatever reason” were not wide enough to encompass fraud in line with well-established principles. However, he held that the natural meaning of the words, “We exclude all liability, loss, damage… caused to your… persons” was to seek to exclude liability for personal injury or death despite the very narrow class of persons to which the clause was capable of applying. This did not by itself mean that the clause was onerous or unusual because, on any view, section 2(1) of UCTA meant that this element of the clause at least was deprived of any effect.

Both parties adduced some evidence as to typical exclusion clauses in the relevant industry, from which it was apparent that Hall Fire’s clause was at the more extreme end of the spectrum, albeit that it was common to limit liability to the contract price. The judge pointed out that in the context of a fire suppressant system, there was probably not much practical difference between a total exclusion and a limitation to the contract price since, if there was a fire, then either way the losses were likely to exceed any payment. The judge also referred to the warranties for the replacement of defective parts and a 12-month defect liability period as giving the customer “something of real value”.

He therefore held that the clause was not onerous or unusual.

Unreasonable as a whole

The judge’s finding that the clause did purport to exclude liability for personal injuries gave rise to an issue as to whether this meant the whole of the clause was unreasonable under section 2(1) of UCTA and so ineffective, or whether it was possible to disregard the reference to “persons” and consider the reasonableness of the remainder of the clause separately.

Section 2(2) of UCTA provides that:

“In the case of other loss or damage, a person cannot so exclude or restrict his liability for negligence except insofar as the term or notice satisfies the requirement of reasonableness.”

The judge considered paragraphs 15-112 to 15-114 of Chitty on Contracts and two relevant Court of Appeal authorities on the severance of exclusion clauses. At paragraph 15-114, the editors of Chitty raised the possibility that where a single term purported to exclude liability for personal injuries and also a liability that could be excluded subject to the test of reasonableness, it was possible to hold that the term was ineffective as to the former but effective as to the latter.

The judge referred to the unreported Court of Appeal decision in Trolex Products Ltd v Merrol Fire Protection Engineers Ltd (20 November 1991) in which Staughton LJ and Sir Michael Kerr agreed with the suggestion in paragraph 15-114 of Chitty. Nourse LJ said that if Staughton LJ was correct in analysing the relevant clause as a single contract term, then he agreed with his reasoning but, in his view, the preferable analysis was that one clause could contain more than one term, each of which could be treated separately and therefore the severance issue did not arise. In Goodlife, the judge concluded that:

“… the ratio of the decision [in Trolex] was that where a [clause] seeks to exclude liability for death or personal injury and also liability for other kinds of loss or damage, the former can simply be excised and the remainder upheld as reasonable if appropriate to do so.”

The case going the other way was Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] QB 600, CA. Here, the relevant clause purported to prohibit the customer from withholding payment of any sum by reason of “any payment, credit, set off or for any other reason whatsoever”. The issue was whether the customer was entitled to rely on a set off. The supplier sought to argue that it only had to show that the requirement of reasonableness was satisfied in relation to set off, and not in relation to the term as a whole.

Lord Donaldson, MR held that “the contract term” meant “the whole term and nothing but the term”. Stuart-Smith LJ said that:

“Nor does it appear to me to be consistent with the policy and purpose of the Act to permit a contract or to impose a contract term, which taken as a whole is completely unreasonable to put a blue pencil through the most offensive parts and say that what is left is reasonable and sufficient to exclude or restrict his liability in the manner relied upon.”

Balcombe LJ agreed with both judgments.

In Goodlife, the judge held that in fact there was no inconsistency between Trolex and Stewart Gill because in Stewart Gill there was no issue as to severance of the part of the clause dealing with a liability that could not be excluded. On the contrary, the supplier was arguing not severance but that he only had to show that the part of the clause on which he relied was reasonable. The judge suggested that Stewart-Smith LJ’s comments above might be regarded as purely obiter, but he said that in any event he did not need to decide that as he was bound by the decision in Trolex.

As the judge pointed out, Trolex was not cited in Stewart Gill, but whether or not Stuart-Smith LJ’s comments were technically obiter, they are of course of very persuasive weight. It is difficult to see why the principle enunciated would be different where the “most offensive parts” of the clause were absolutely prohibited by UCTA rather than simply being obviously unreasonable. It will be interesting to see the result of any appeal.

Unreasonable disregarding the prohibited element

The judge then had no difficulty in finding that the remainder of the clause was not unreasonable. As he said, the plethora of decisions on “reasonableness” were of limited assistance given that each turned on the specific clause and specific facts of each case, but he set out a helpful summary of the relevant principles.

Accordingly, Hall Fire was entitled to rely on clause 11 and Goodlife’s claim in negligence was excluded.

Keating Chambers Lucy Garrett

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