What is “reasonable” under the Unfair Contract Terms Act?

In the recent case of Goodlife Foods Limited v Hall Fire Protection Limited the Technology and Construction Court took a fresh look at the often discussed question of what is a “reasonable” exclusion clause under the Unfair Contract Terms Act 1977 (“UCTA”).

Goodlife produces vegetarian meals, while Hall Fire is the supplier of fire prevention products and services to businesses.

In 2012, an unfortunate incident occurred at Goodlife’s premises where an industrial frying machine caught fire. This resulted in significant damage to property and losses due to business interruption, all amounting to over £6 million. Hall Fire had designed, supplied, installed and commissioned the fire suppression system at Goodlife’s premises ten years before the fire and Goodlife claimed that the failure of this system was the cause of the fire.

Goodlife sued Hall Fire for negligence and they, unsurprisingly, relied on their terms and conditions to try to avoid any liability as they included a wide exclusion clause, including an exclusion of all liability for any claim in negligence.

The wording of the clause in question was as follows:

'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 [Hall Fire] for whatever reason.'

Goodlife argued that this clause was not enforceable and one of the key issues in the case was a decision as to whether or not the clause was reasonable under UCTA.

Unsurprisingly, the Court had no problem in finding that the attempted exclusion of liability for death or personal injury was ineffective as it was unlawful under section 2(1) of UCTA.

However, the bigger point to be considered was whether the whole exclusion clause should be considered to be unreasonable. In its considerations, the Court was bound by the 2011 case of Trolex Products Limited v Merrol Fire protection Engineers Limited (unreported). In this case, the Court of Appeal held that even if a contract term is ineffective as a result of it contravening section 2(1) of UCTA, the remainder of that term may still be reasonable.

Goodlife argued that the exclusion clause was unreasonable on a number of grounds, one of which was that it was too wide in its scope. The Court confirmed, when considering reasonableness, that regard must be had, amongst other things, to:

  1. the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties at the time the contract was made;
  2. the strength of the parties' respective bargaining positions; and
  3. whether the customer ought reasonably to have known about the term in question.

The Court reached the decision that Goodlife would, or should, have put in place insurance to cover this type of loss. In light of the fact that it is generally more economical for the party that could sustain loss to arrange for insurance cover, it was considered to be perfectly reasonable for Goodlife to arrange such cover.

In the view of the Court, the parties were of ‘broadly equal size and bargaining power’, and was further of the opinion that Hall Fire had taken reasonable steps to draw the exclusion clause to the attention of Goodlife both before and after the contract came into effect.

This decision is an interesting one in light of the Court’s decision on how to view an exclusion clause which is partly invalid. It follows some recent decisions showing that a widely drafted exclusion clause will not necessarily be considered to be unreasonable, even if the circumstances are such that the innocent party will be left high and dry.

By Daniel Gardener

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