The Court of Appeal has confirmed that a wide limitation clause in a commercial contract was ‘reasonable’ and not an unfair contract term. This follows a recent trend in cases where courts are upholding terms that have been negotiated freely between commercial parties with relatively equal bargaining power.
In this case, the supplier had installed a fire suppression system at the customer’s premises. Unfortunately, some years after the installation of the system, a fire at the customer’s premises caused them a loss in excess of £6 million.
The contract excluded the customer from claiming against the supplier for loss, damage or expense as a result of negligence or a malfunction of their systems amongst other exclusions. Importantly it also stated that the defendants could provide insurance cover for the excluded risks for an additional cost.
After the fire, the customer tried to argue that the supplier was negligent and claimed against the supplier for their losses. The supplier argued that the contract excluded their liability for such loss and the customer contended that this was an unfair contract term under the Unfair Contract Terms Act 1977.
The Court of Appeal upheld the decision that the exclusion clause was reasonable and binding. The supplier was not liable for the customer’s loss.
Stating that additional insurance could be provided reiterated that the supplier would not assume liability for future events, which was found to be reasonable.
Other persuasive factors in this case were:
- The contract was low-value;
- It was usual in these circumstances for liability to be limited;
- The contract was for a one-off installation with no ongoing maintenance obligations; and
- The clause was freely agreed.
This case demonstrates that interpreting a limitation clause is down to context but there is certainly a trend that wide reaching limitation clauses are enforceable.