This article looks at the recent case of Goodlife Foods Limited v Hall Fire Protection Limited.

The Technology and Construction Court recently found in the case of Goodlife Foods Limited v Hall Fire Protection Limited that an exclusion clause purporting to exclude any claim in negligence was reasonable and therefore lawful under the Unfair Contract Terms Act 1977 ('UCTA').

Background

Goodlife is a producer of vegetarian meals while Hall Fire supplies businesses with fire prevention products and services. In 2012, an industrial frying machine caught fire at Goodlife's premises leading to property damage and business interruption losses of over £6 million. Goodlife claimed that the cause of the fire was the failure of the fire suppression system which Hall Fire had designed, supplied, installed and commissioned for Goodlife ten years previously.

Goodlife issued a claim in negligence against Hall Fire who sought to rely on its standard Terms & Conditions which contained a wide exclusion clause, purporting to exclude all liability for any claim in negligence. The exclusion clause was drafted as follows:

'We exclude all liability, loss, damage or expense consequential or otherwise caused to your property, goods, persons or the like, directly or indirectly resulting from our negligence or delay or failure or malfunction of the systems or components provided by [Hall Fire] for whatever reason.'

Goodlife challenged the enforceability of this clause. One of the main issues to be decided was whether or not the exclusion clause was reasonable under UCTA.

Applying UCTA: the Court's findings on reasonableness

The Court quickly found that the attempt to exclude liability for death and personal injury caused by Hall Fire's negligence was ineffective because to exclude such liability is unlawful under section 2(1) of UCTA. The key point the Court had to decide here was whether, by endeavouring to exclude such liability, the whole exclusion clause should be rendered unreasonable.

In this respect, the Court was bound by the 2011 case of Trolex Products Limited v Merrol Fire Protection Engineers Limited (unreported) where the Court of Appeal held that even if part of a contract term is ineffective because it contravenes section 2(1) of UCTA, the rest of the term may still be reasonable.

Goodlife asserted that the exclusion clause was unreasonable on other grounds, one of the main reasons being that its scope was too wide. The Court considered the requirement of reasonableness as far as exclusion clauses were concerned (as defined in UCTA), confirming that regard must be had, amongst other things, to: (i) the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties at the time the contract was made; (ii) the strength of the parties' respective bargaining positions; and (iii) whether the customer ought reasonably to have known about the term in question.

While the Court acknowledged that the clause excluded practically all of Hall Fire's liability for loss or damage suffered by Goodlife should the fire suppression system fail, it considered that the only likely loss Goodlife would suffer in the event of such failure was the loss caused by a fire not being prevented. The Court concluded that Goodlife would (or should) be covered for this type of loss by insurance. Given that it is normally more economical for the party that is sustaining the loss to actually insure for the loss, it was perfectly reasonable to expect Goodlife to arrange such cover. The Court considered the parties to be of 'broadly equal size and bargaining power' and found that Hall Fire had taken reasonable steps to draw the clause to Goodlife's attention both before and after the contract came into effect. The Court considered the exclusion of liability to be a sensible allocation of risk in the circumstances and reasonable under UCTA.

Conclusion

This case is an interesting example of the approach the courts will take when met with a clause which is partly invalid. Nevertheless, it is still bad practice to draft a clause which attempts to exclude liability for death and personal injury caused by negligence as it runs a risk of being unenforceable and may lead to litigation like in this case.

The decision also follows recent decisions which show that a widely drafted exclusion clause will not necessarily be deemed to be unreasonable, even if the innocent party is effectively left without any recourse. This will particularly be the case where the parties are of equal size and deemed to have equal bargaining power, as they were here.

Finally, the case also highlights how important it is for customers to review exclusion clauses in the specific context of their deal and to identify the key risk areas and how they should be covered - here the Court found that it was Goodlife's responsibility to obtain insurance for a risk which ought reasonably to have been in its contemplation when it contracted with Hall Fire.