Following a fire at its business premises on 25 May 2012, Goodlife commenced proceedings against Hall Fire for breach of contract and/or negligence in the supply and installation of a fire suppression system, which Hall Fire installed to a multi-purpose fryer some ten years before. It was common ground that the claim for breach of contract was statute barred.
Goodlife alleged that a defect in the installation of a compression joint on a dog-leg section of pipework on top of the fryer hood failed and separated thereby preventing the full spread of fire suppressant media at the time of the fire. Goodlife pleaded that the fire caused property damage and business interruption loss of about £6.6m.
Clause 11 of Hall Fire’s standard terms excluded its liability for any part of Goodlife’s claim for damages. Clause 11 provided:
(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 whatsoever reason.
In the case of faulty components, we include only for the replacement, free of charge, of those defective 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.
The terms included a warranty for major plant items supplied with the benefit of the supplier’s guarantees for a 12-month defect liability period.
HH Judge Stephen Davies dismissed the claim at trial upholding clause 11. Goodlife appealed.
Issues on appeal
The appeal concerned whether clause 11 was incorporated into the contract and if so, was it reasonable within the meaning of the Unfair Contract Terms Act 1977. On 18 June 2018, the Court of Appeal gave judgment dismissing the appeal.
Incorporation – 1a) Was clause 11 particularly unusual or onerous?
The Court of Appeal held that clause 11 was not particularly unusual or onerous. The mere fact a clause is a limitation or exclusion clause does not of itself mean it is unusual or onerous. Everything turns on context and the contract must be considered as a whole.
In this respect, this was a one-off supply contract costing £7,490 in 2002. Clause 11 was not a blanket exclusion. It preserved a limited liability on the part of Hall Fire in respect of faulty components and that warranty was of real value. Other than the limited warranty, Hall Fire had no maintenance obligations or any other connection with Goodlife’s premises post-installation of the fire suppressant system. Hall Fire was exposed potentially to unlimited liability for an indefinite period. In the circumstances, the Court of Appeal considered it neither particularly unusual nor onerous for Hall Fire to fully protect themselves against the possibility of unlimited liability arising from future events.
Acknowledging clause 11 was wide-ranging, the Court of Appeal could not describe it as particularly onerous or unusual in circumstances where clause 11 indicated Hall Fire might have been prepared to accept a wider liability, but that would have involved insurance arrangements and an increase in the contract price.
The Court of Appeal considered evidence relating to the terms of other fire suppression system contractors. All of them offered a wide variety of exclusion and limitation clauses with a common offering to limit liability to the contract price. It is always possible to identify different types of claims and loss which might arise but the Court of Appeal confirmed that it is quite right to focus on the two most likely scenarios, on the one hand, a claim based on loss or damage before a fire (modest loss) and on the other, a claim based on loss and damage after a fire (substantial loss). On this basis, the Court of Appeal upheld there is no substantive difference between the wide exclusion provided by clause 11 and a clause limiting liability to a modest contract sum.
Incorporation – 1b) Even if it was particularly unusual or onerous, was it fairly and reasonably brought to Goodlife’s attention?
The Court of Appeal held clause 11 was fairly and reasonably brought to Goodlife’s attention.
The appeal did not challenge findings of HH Judge Stephen Davies that Hall Fire’s written quotation included the reference “standard HFS terms and conditions apply” beneath the quotation price and that Hall Fire sent a copy of its terms to Goodlife with the quotation.
The Court of Appeal observed that clause 11 was not buried away in the middle of a raft of small print. It was printed in clear type. Significantly, clause 11’s potentially wide-reaching effect was identified at the very start of the terms. Goodlife had plenty of time to read and understand the terms and take advice.
The Court of Appeal considered it commercially unrealistic to say clause 11 was not fairly and reasonably brought to the attention of Goodlife. Even if it were particularly unusual or onerous, it would still have been deemed incorporated.
Reasonableness – UCTA
A clause assessed to be unreasonable in accordance with UCTA is ineffective. The Court of Appeal held clause 11 was reasonable.
The parties were broadly equal in terms of bargaining positions. Goodlife received no inducement to agree clause 11. Significantly, Goodlife could have gone elsewhere and found a supplier who was prepared to contract on less stringent terms. Goodlife ought reasonably to have known of the existence of clause 11 where notice had been fairly and reasonably given.
Clause 11 was not a blanket exclusion. The warranty in respect of faulty components, although limited, was something of value.
The Court of Appeal considered the insurance position to be at the heart of the reasonableness issue in this case and a critical factor in Hall Fire’s favour. Goodlife was undoubtedly best placed to effect the insurance cover needed to protect against future loss events. Goodlife had such insurance in place and the Court of Appeal considered it unrealistic to ignore the fact that this claim was brought by Goodlife’s insurers. The fact Hall Fire had insurance was relevant but by no means determinative.
Significantly, although clause 11 excluded liability for future events, it suggested an alternative to the basic tender, to be effected by way of insurance. The third part of clause 11 stated that this would then allow Goodlife to have the benefit of that liability which the first part otherwise excluded. The Court of Appeal agreed that the third part of clause 11 was one of the most important elements in the courts consideration of reasonableness.
The Court of Appeal considered it not unreasonable for one party to exclude liability for the vast majority of the damage and loss that might arise from its own defective performance, whilst making clear that, if the customer does not want such liability to be excluded, then, on the taking out of and payment for the necessary insurance, liability would be accepted.
In the context of assessing Hall Fire’s core obligations and the provision of a proper fire system, the Court of Appeal confirmed the contract must be looked at as a whole. Here, Hall Fire had agreed to supply a fire suppressant system on the basis that they had severely limited their liability for any future claims. The supply of the system cannot be looked at in isolation from the terms, including clause 11, on which Hall Fire were prepared to supply and install it.
In relation to the allocation of risk, a number of authorities stress the importance of terms freely agreed by parties of broadly equal size and bargaining strength and the lack of enthusiasm by the courts to intrude into such arrangements. Clause 11 was freely agreed. Both parties knew Hall Fire did not have an open-ended liability for events that happened a decade or more post-installation. The Court of Appeal considered this an entirely reasonable allocation of risk in a contract worth just £7,490. Clause 11 expressed the allocation of risk and offered an alternative option.
In the circumstances, the claim of Goodlife was dismissed in its entirety with an order to pay Hall Fire’s costs.
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