Can a supplier rely on an exclusion or limitation clause in its trading terms to escape liability for defective or late goods?
A supplier can write an exclusion or limitation clause into its terms, but under the Unfair Contract Terms Act 1977 it must prove the clause was reasonable. Some hold; those that remove all remedy usually do not.
Only if the clause is reasonable: under the Unfair Contract Terms Act 1977 the supplier must prove that an exclusion or limitation clause was fair and reasonable to include, a clause that leaves the other party with no meaningful remedy is likely to fail, and the court weighs the parties bargaining strength and the balance between the contract price and the loss at stake
Only if the clause is reasonable. Suppliers may include clauses that exclude or limit liability for defective or late goods, but under the Unfair Contract Terms Act 1977 the supplier must show that such a clause was fair and reasonable to include, and section 11(5) puts that burden on the supplier. Clauses that go too far have failed: in Rees Hough v Redland and George Mitchell v Finney Lock Seeds the limits were unreasonable, and in Lobster Group v Heidelberg a clause that would leave the claimant with no meaningful remedy failed. Clauses have been upheld between commercial parties of equal standing who allocated risk deliberately, as in Chester Grosvenor v McAlpine and Shepherd Homes v Encia; in Regus v Epcot the Court of Appeal upheld an exclusion of consequential loss because the customer still had a remedy in the diminished value of the services; and a short notification period was reasonable in Expo Fabrics. A clause only faces section 3 if it is in a party's written standard terms, which British Fermentation Products v Compair Reavell says must invariably or usually be used. An attempt to eliminate all liability is likely to fail, and the court weighs the contract price against the loss when judging a cap.
| The Act | UCTA 1977 reaches clauses limiting or excluding liability |
| The burden | Section 11(5): the supplier must prove reasonableness |
| Struck down | Rees Hough, George Mitchell, Lobster Group |
| Upheld | Chester Grosvenor, Regus v Epcot, Shepherd Homes |
| Standard terms | Must invariably or usually be used (British Fermentation) |
| Price against loss | A cap is judged against the loss it must answer |
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