Monday, 2 July 2018

Goodlife Foods Ltd v Hall Fire Protection Ltd

[2018] EWCA Civ 1371

This appeal concerned an exclusion clause in the standard terms of a specialist fire suppression contractor. The question for the CA was whether the clause was incorporated into the contract between the parties and, if so, whether the clause was reasonable within the meaning of the Unfair Contract Terms Act 1977 (“UCTA”). The case followed a fire at factory premises in Warrington. Goodlife brought a claim against Hall Fire who had supplied and installed the fire suppression system some ten years before. The claim for breach of contract was statute-barred; however, the claim in negligence, where the six-year limitation period did not begin to run until the date of the fire, was not statute-barred. Hall Fire relied upon clause 11 in their standard terms and conditions:

“We exclude all liability, loss, damages 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 whatever reason. 

In the case of faulty components, we include only for the replacement, free of charge, of those defected 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.”

If Hall were entitled to rely on clause 11, then this would exclude liability for any part of Goodlife’s claim. LJ Coulson, in one of his first decisions in the CA, explained that:

“It is a well-established principle of common law that, even if A knows that there are standard conditions provided as part of B’s tender, a condition which is ‘particularly onerous or unusual’ will not be incorporated into the contract, unless it has been fairly and reasonably brought to A’s attention.” 

The Judge noted that the mere fact that the clause in question is a limitation or exclusion clause did not mean of itself that it was onerous or unusual. Clauses which have limited a specialist supplier or subcontractor’s liability to the amount of the contract price, or which have excluded liability for indirect loss or loss of profit, have not been regarded by the courts as particularly onerous or unusual. The clause here was not a blanket exclusion clause. The question had to be considered in the context of the contract as a whole. This was a one-off supply contract carried out, for a modest sum, in 2002. Hall Fire had no maintenance obligations or any other connection with the premises at Warrington after they had installed the system. It was therefore neither particularly unusual nor onerous for Hall Fire fully to protect themselves against the possibility of unlimited liability arising from future events. In addition, Hall Fire had indicated that, as an alternative, they might have been prepared to accept a wider liability, but that this would have involved different insurance arrangements and an increase in the contract price, so that was not pursued. 

When it came to the issue of notice, clause 11 was not “buried away” in the middle of a raft of small print. It was one of the standard conditions which were expressly referred to on the front of the quotation and which were printed in clear type. Further, its potentially wide-reaching effect was expressly identified at the very start of those same conditions. Also, Goodlife had had over a year between the sending of the quotation, with the relevant standard terms and conditions, and the entering into of the contract. That was plenty of time to take advice. 

This left the question of whether or not clause 11 was unreasonable in accordance with the UCTA. If it was, then the clause would be ineffective. Essentially, under section 2 of the UCTA you cannot exclude or restrict liability for negligence: “except in so far as the term or notice satisfies the requirement of reasonableness”. By section 11, the relevant test is whether the contract term was a “fair and reasonable one … having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made”. Those circumstances include:  (a) the resources available for the purpose of meeting the liability should it arise; and (b) the availability of insurance cover. Schedule 2 of the UCTA lists some guidelines including: 

“ (b) whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons, but without having a similar term; …

 (e) whether the goods were manufactured, processed or adapted to the special order of the customer.”

LJ Coulson considered that both of these were relevant here and both pointed towards the reasonableness of clause 11. For example, the parties were broadly equal in terms of their bargaining positions. Goodlife could have gone elsewhere and found a supplier who was prepared to contract on a less stringent basis and Goodlife ought reasonably to have known of the existence of the terms. The insurance issue was another “important consideration” in favour of Hall Fire and the reasonableness of clause 11. Goodlife, given its knowledge of the precise effect on its business if there were a fire that stopped the factory working, was in the best position to place its own insurance to cover those risks. Hall Fire’s insurers would never have had the same detailed knowledge. Further, although clause 11 excluded liability for future events, it suggested an alternative to Hall Fire’s basic tender: insurance. There was more than a year between Goodlife receiving the term proposed by Hall Fire, and agreeing to the contract. That was plenty of time to consider and explore the alternative options.  

Finally, it could not be said that as Hall Fire were seeking to avoid their core obligation of providing a proper fire suppression system, clause 11 should be regarded as unreasonable. Looking at the contract as a whole, although Hall Fire had agreed to provide the fire suppression system, they had agreed to do so on the basis that they had severely limited their liability for any future claims. The supply of the system and clause 11 itself could not be looked at in isolation from the terms on which Hall Fire were prepared to supply and install it. The clause was reasonable and Hall Fire were entitled to rely upon it.

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