The Unfair Contract Terms Act 1977 (“UCTA”) has long protected parties by prohibiting the enforceability of unfair exclusion clauses within contracts. Whilst some liabilities cannot be limited, such as liability for fraud by a contracting party, others require the satisfaction of the reasonableness test to remain enforceable.
The UCTA reasonableness test, within Section 11 of the Act, is employed to assess whether terms included in a contract are fair and reasonable when taking into account the knowledge of the parties and the knowledge they ought reasonably to possess at the time of entering into a contract. The burden of proof is upon the party seeking to rely upon the clause.
The recent case of Goodlife Foods Limited v Hall Fire Protection Limited  EWCA Civ 1371 illustrates the Court of Appeal’s approach towards the implementation of the use of UCTA within commercial contracts.
Goodlife Foods Limited (“Goodlife”) is a Warrington based company which produces vegetarian pre-packaged meals. Goodlife contracted Hall Fire Protection Limited (“Hall”) for the installation of a fire suppression system for its factory. Ten years later, in 2012, a fire at the Warrington factory occurred which Goodlife envisaged should have been prevented by the system provided and installed by Hall. Consequently, a substantial claim was brought against Hall for the losses caused by the fire.
Hall sought to defend the claim based on reliance upon an exclusion clause contained within its standard terms and conditions which excluded “all liability, loss, damage or expense consequential or otherwise caused to your property […] resulting from our negligence or delay or failure or malfunction of the systems”. The reasonableness of the clause was challenged by Goodlife and consequently the Court at first instance, and subsequently the Court of Appeal, were tasked with concluding if the term satisfied the reasonableness test.
The Courts rejected Goodlife’s challenge to this clause. The Court of Appeal noted the approach that should be taken in considering commercial cases is that, where parties are of equal bargaining power, freedom of contract need remain. The trend, therefore, has been to uphold terms freely agreed in instances where the other party could have contracted elsewhere or obtain effective insurance cover. In this case the only loss that the clause intended to exclude was one which Goodlife could be expected to insure against: fire.
This case highlights the paramount importance of ensuring adequate insurance cover is in place and careful review of terms is undertaken as the judgement suggests that clauses that otherwise may be deemed to be unreasonable will not be found to be so when protecting against a commonly insured risk.
This approach is reflective of that taken in Granville Oil & Chemical Limited v Davis Turner & Co Limited where Tuckey LJ stated, at paragraph 31 of his judgment, that whilst UCTA played “a very important role in protecting vulnerable consumers” he was less convinced about “its intrusion into contracts between commercial parties of equal bargaining strength, who should generally be considered capable of being able to make contracts of their choosing and expect to be bound by their terms”.
Indeed, in Goodlife, Gross LJ said that “the Court should be slow to intervene in such a case” but this by no means marks the passing of the involvement of UCTA in commercial contracts, far from it. The Court of Appeal, in close proximity to the ruling in Goodlife, upheld a first instance ruling in First Tower Trustees Limited (2) Intertrust Trustees Limited v CDS (Superstores International) Limited which found that a clause excluding liability for misrepresentation failed to satisfy the reasonableness test within UCTA. Whilst this shows that the predominant theme should be for the Courts to exercise caution in mobilising UCTA in commercial contract disputes between parties of equal bargaining power, the Act itself still has a part to play.