Summary: Commercial Management (Investments) Ltd v Mitchell Design and Construct Ltd & Anor [2016] provides a reminder that the UCTA reasonableness test will apply to standard terms in a business to business (B2B) contract, even if they are only partly incorporated.

What happened?

The defendant contractor (Mitchell) was engaged to design and build a warehouse and subcontracted some of the groundworks to Regorco.

After completion, the claimant (Commercial) bought the warehouse and received a collateral warranty from Regorco. Nine years later, Commercial brought proceedings under the warranty, alleging that the groundworks were defective.

Regorco argued that it had a complete defence to Commercial’s claim, because its standard terms included a limitation clause which required all claims to be notified to Regorco within 28 days of the defect appearing, and in any event within a year of completion.

The problem for Regorco was that there was some doubt as to the exact terms of the subcontract. So why the confusion? Unfortunately, it was the old story of a “battle of the forms”. All started well enough, with the invitation to tender indicating that the subcontract would be JCT DOM/2, but it was downhill from there. When Regorco submitted its quotation, it referred to its own standard terms and conditions. Mitchell confirmed its intention to engage Regorco, but failed to issue an order to Regorco until after the subcontract works were complete.

The order finally sent by Mitchell specified that the subcontract would be the DOM/2 form and its standard terms and conditions were on the back. These included a clause stating that Mitchell’s terms would override Regorco’s, as well as an indemnity in respect of liabilities arising from Regorco’s performance of the subcontract. Regorco returned the signed order with several manuscript amendments, including a statement that Mitchell’s terms would only override its terms "where applicable". Mitchell then countersigned the manuscript amended order. Hence the confusion.

Issues

The case hinged on the terms of the subcontract. The court considered several preliminary issues, of which the key ones were:

  • Were Regorco’s standard terms (and therefore the limitation clause) incorporated into the subcontract?
  • If so, were the parties dealing on Regorco’s “written standard terms of business”, so that s.3 of UCTA was engaged?
  • If s.3 of UCTA applied, was the limitation clause reasonable in accordance with s.3(2)?

Conclusions

The court held in favour of Commercial, ruling that the limitation clause had not been incorporated into the subcontract because it was overridden by Mitchell’s terms.

The court also commented that, if the clause had been incorporated (even only in part), UCTA would have applied and the parties would have been dealing on Regorco's "written standard terms of business". The limitation clause would then have fallen foul of the UCTA reasonableness test, because it acted as a time bar against claims.

The court made it clear that a short timeframe for the notification of defects, particularly in relation to groundworks, was unreasonable. In practical terms, there is often a substantial lapse of time before defects become apparent in the context of groundworks. The parties would not reasonably have expected that compliance with both the 28 day and one year limitation periods would be achievable, let alone practicable.

Lessons

This case is important because it reminds parties to a B2B contract that if you are using a standard set of terms, even if only in part, then UCTA will be engaged.

Any limitations or exclusions in your standard terms must be reasonable for the purposes of UCTA. In order to pass the reasonableness test, a contract term must be fair and reasonable 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.