A key part of any set of terms and conditions can be exclusion clauses.
Leaving aside the raft of protections for business to consumer contracts, it is important to note that companies must adhere to the requirements contained in the Unfair Contract Terms Act 1977 (UCTA) when drafting or relying on any clauses that attempt to exclude their liability.
A good example would be the recent case of Phoenix Interior Design Ltd v Henley Homes plc and another (2021).
The case concerned a dispute as to whether the goods/services provided by an interior design company to a hotel in Scotland were defective.
While the dispute was being debated, the Buyer retained the balance of the monies owed to the Seller, who then attempted to rely on an exclusion clause.
So what was the clause? It stated;
“The Seller shall be under no liability under the above warranty (or any other warranty, condition or guarantee) if the total price of the Goods has not been paid by the due date for payment”.
The practical effect of the clause means that the Buyer would be deprived of its rights of redress against the Seller for any liability attributable to them, if the Buyer did not first pay the total price of the goods by the due date.
The Buyer therefore argued that such a clause could not be effective under UCTA under the ‘reasonableness’ test. They argued:
- That even though the contract was said to be subject to the terms and conditions “overleaf”, such terms were never attached to the contract. In fact, these were sent separately in hard copy and by email and they argued that these had not been effectively incorporated as part of the contract.
- That even if the Court found that the terms and conditions had been effectively incorporated (thereby also including the exclusion clause), the exclusion clause itself must fail as it would fall foul of the section 11 reasonableness requirement under UCTA.
The court decided that:
- The terms and conditions had been effectively incorporated into the contract; but
- The exclusion was an unusual clause which was “tucked away in the undergrowth” of detailed terms and conditions and not brought to the buyer’s attention; and
- It was “exorbitant” that the consequences of any slight delay in payment or deduction meant that the Seller was absolved from any liability.
Fundamentally, this case serves as a reminder to parties that when drafting exclusion clauses they ensure that they comply with the requirements set out in UCTA.
So what should be borne in mind when drafting an exclusion clause? Factors to consider are:
- Make sure that any exclusion clause is clearly highlighted to the party it is contracting with and not “tucked away in the undergrowth” of standard terms and conditions;
- Be wary of drafting clauses which are far beyond a market standard – clauses which are “exorbitant” in relation to the ultimate consequences are likely to be ineffective.
Do make sure therefore that any exclusion clauses are not so onerous as to fall foul of UCTA, and that any unusual clauses are not buried in the fine print in the hope of avoiding the other party’s attention.
Any provisions should be clearly visible and any unclear consequences should be clearly highlighted.
Finally, while care needs to be taken when drafting a set of T&C’s as a rule, if both parties are of similar bargaining power such clauses are likely to be heavily negotiated and may therefore be less likely for them to be contested on the basis that they do not adhere to the UCTA reasonableness requirements. In a nutshell, good negotiation can protect provisions from being invalid on the basis that the parties did have the opportunity to consider them.
Regards to all