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Exclusion of Liability

Tuesday, 10 July 2012

Contracts for the supply of goods and services are subject to the general principles of contract law. Other legislative and common law provisions also apply but they are generally less stringent when a contract is made between two businesses rather than a business and a consumer.

Common Law

Case law supports the notion that the general approach in business to business relationships is more laissez faire than for business to consumer relationships. The most famous statement of this came from a case known as Photo Production Limited v Securicor Transport Limited in which a Securicor employee lit a fire in the claimant’s factory to keep warm and burnt it down in the process. Securicor sought to rely on their exclusion clause to avoid liability. Lord Wilberforce stated:

“in commercial matters generally, when the parties are not of unequal bargaining power, and when the risks are normally borne by insurance, not only is the case for judicial intervention undemonstrated, but there is everything to be said for leaving the parties free to apportion the risk as they see fit and for respecting their decisions.”

Legislative Provisions

The most important piece of legislation is the Unfair Contract Terms Act 1977 (UCTA). The Act seeks to establish a fundamental principle of fairness in relation to contractual arrangements.

One area of potential exclusion from liability that is ruled out completely by the Act is liability for death or personal injury resulting from negligence. Clauses relating to other areas of exclusion must pass a test of reasonableness to be effective.

Other areas of liability exclusion that the Act seeks to regulate include: general negligence, contractual performance, sale and supply of goods and misrepresentation.

There are a number of circumstances that are explicitly prevented from being excluded in a contract with consumers:

  • Negligence leading to personal injury or death
  • If a manufacturer’s guarantee exists and the goods are of a type ordinarily supplied for private use or consumption
  • Sale of goods implied terms under the Sale of Goods Act 1979 relating to title or relating to description, quality or sample
  • Terms governed by the Consumer Protection Act 1987

The Test of Reasonableness

Any other exclusions not explicitly prevented are subject to a test of reasonableness, defined by common law and more particularly defined under the Unfair Contract Terms Act as considering:

  • The relative strength and bargaining position of the parties taking into account the customer’s alternatives for meeting its requirements
  • Whether the customer received an inducement for agreeing to the term
  • Whether the customer knew or ought reasonably to have known the existence and extent of the term taking into account trade practices and previous courses of dealing
  • If the exclusion clause relied on a condition not being met and whether it was reasonable for that condition to have been met
  • Whether the goods were manufactured, processed or adapted to the special order of the customer

Rollingsons has lawyers experienced in drafting standard terms and conditions and negotiating bespoke contracts; if you need advice or would like more information please contact James Crighton via e-mail or by phone on 0207 611 4848.