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Incorporation of non-standard standard terms

The UK Court of Appeal has recently considered the perennial problems that arise over the incorporation of unusual or onerous standard terms into a contract, particularly those limiting or excluding liability.

In Goodlife Foods Ltd v Hall Fire Protection Ltd, the appellant was the owner of food production premises in Warrington and the respondent was a specialist fire suppression contractor. The parties entered into a contract whereby the respondent agreed to provide a fire suppression system for the modest price of £7,490. The contract was contained in a quotation from Hall Fire and referred to its standard terms and conditions and which brought specific attention to an exclusion clause. That clause excluded all liability resulting from the respondent’s breach, provided a warranty for replacement of defective components and stated that insurance to cover the two foregoing risks could be obtained at an additional cost.

In 2012 a fire broke out at the appellant’s premises and causing damage and business interruption amounting to £6.6m. The appellant commenced proceedings claiming that failure of the fire suppression system caused the aforementioned damage. The respondent sought to rely on the exclusion clause which excluded its liability for any part of the appellant’s claim in damages. The appellant argued that the exclusion clause was onerous and unusual and had not been fairly brought to its attention. The appellant also sought to rely on the Unfair Contract Terms Act 1977 to argue that the exclusion term was unreasonable and therefore ineffective.

Coulson LJ, giving the leading judgment posed various questions including, firstly, whether the exclusion clause was unusual and/or onerous, and even if it was, was it fairly brought to the attention of the appellant? Secondly, if the clause was incorporated into the contract, was it unreasonable and therefore ineffective under the provisions of the Unfair Contract Terms Act? The Court of Appeal found that the exclusion clause was not particularly unusual or onerous and that it had been brought fairly to the attention of the other contracting party. The Court quoted from Chitty on Contracts (32nd Edition, 2015) as stating the principle:

‘Although the party receiving the document knows it contains conditions, if the particular condition relied on is one which is a particularly onerous or unusual term, or is one which involves the abrogation of a right given by stature the party tendering the document must show that it has been brought fairly and reasonably to the other’s attention.”

The Court of Appeal held, in dismissing the appeal, that the exclusion clause had been incorporated into the contract and that there was no reason for interfering with the finding of the court of first instance that the clause was not particularly onerous or unusual. The clause was not a blanket exclusion because it had preserved an element of liability on the respondent’s part by the warranty and the respondent had brought to the appellant’s attention the option of insurance to cover wider liability. The Court held that the term was not unreasonable under the Unfair Contract Terms Act 1977 because the terms were freely agreed between commercial parties of broadly equal size and bargaining power.

Terms of agreement

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