The High Court has found that the requirement of reasonableness imposed by the Unfair Contract Terms Act 1977 (UCTA) can apply in circumstances where a party's written standard terms and conditions are incorporated only in part and other terms are tailor made: Commercial Management (Investments) Limited v Mitchell Design and Construct Limited and another [2016] EWHC 76 (TCC).

The UCTA reasonableness test applies to (among other things) any attempt to exclude or restrict liability for breach of contract where one party deals "on the other's written standard terms of business". Parties may assume that the test is not engaged in the context of a contract made between two commercial parties where certain of the terms have been negotiated and others are in standard form.

However, this decision makes it clear that it is not necessary for the full suite of a party's standard written terms and conditions to be incorporated into a contract before UCTA will apply. This means that more exclusion clauses may be open to challenge on grounds of reasonableness than might generally have been assumed. Sarah Boland, a senior associate in our dispute resolution team, considers the decision further below.

Background

The first defendant ("Mitchell") was engaged to design and build a warehouse in Kent. Mitchell entered into sub-contracts with the second defendant ("Regorco") to carry out vibro compaction and piling works at the site. The claimant subsequently acquired an interest in the completed warehouse and is the beneficiary of a warranty given by Regorco.

Nearly ten years after the works were completed, the sub-tenant in occupation of the warehouse complained of settlement of the slab beneath the production area.

Regorco's standard terms and conditions contained a provision, clause 12(d), which required the notification of any claim to be made in writing within 28 days of the appearance of any alleged defect, or of the occurrence of the event complained of, and in any event to be so notified within one calendar year of the date of completion of the works.

The court tried the following as preliminary issues:

  1. whether clause 12(d) had been incorporated into the sub-contracts;
  2. if it had, whether it was subject to the provisions of UCTA; and
  3. if so, whether it satisfied the test of reasonableness.

Decision

The question of whether clause 12(d) had been incorporated was a difficult one, due to a complex "battle of the forms" style exchange of standard terms and conditions between Mitchell and Regorco. The court (Mr Justice Edwards-Stuart) held that clause 12(d) had not been successfully incorporated into the sub-contracts, but went on to consider whether UCTA would apply in the event that this conclusion was incorrect.

The court was satisfied that the terms Regorco sought to be adopted were its "written standard terms of business". Although Regorco's group risk manager acknowledged that its standard written terms and conditions were negotiable "for a price", he said that Regorco did everything that it could to ensure that its terms and conditions were accepted.

Edwards-Stuart J distinguished the present case from his own judgment in Yuanda (UK) Co Ltd v W W Gear Construction Ltd [2010] EWHC 720 (TCC) where he held that “[i]f there is any significant difference between the terms proffered and the terms of the contract actually made, then the contract will not have been made on one party's written standard terms of business." He said his comments in Yuanda must be seen in their own context. In that case the relevant terms came into existence solely for one particular project. It was not a case where a company had a printed set of conditions that it intended to use for every contract, year in year out, as was the case here, and the terms were in fact amended by almost every trade contractor on the project.

Regorco sought to argue that, to be dealing on its written standard terms of business, the entirety of Regorco's terms and conditions would have to have been incorporated into the sub-contracts, which they hadn't. Edwards-Stuart J rejected this argument, approving and adopting the obiter reasoning in Pegler v Wang [2000] BLR 218. If, therefore, clause 12(d) had been incorporated into the sub-contracts at Regorco's insistence, then Mitchell would have been required to deal on Regorco's written standard terms of business and UCTA would have applied.

The court held that clause 12(d), if it had been incorporated into the sub-contracts, did not satisfy the reasonableness test under UCTA. The court placed much weight on the fact that, in the context of ground compaction and piling work, there will often be a substantial lapse of time between completion of the works and appearance of any visible defects. Clause 12(d) sought to exclude claims unless they were made both within the 28 day time limit and within the longstop date of one year. The court held that compliance with these requirements was not "achievable, let alone practicable, save in rare cases".