It is recognised that small ticket lessor terms and conditions are subject to the “reasonableness” test in the Unfair Contract Terms Act 1977. A court has recently found that a mid ticket lessor’s lease terms can be subject to the test.
The situation in Lobster Group Limited -v- Heidelberg Graphic Equipment Limited and Close Asset Finance Limited  EWHC 1919 (Technology and Construction Court) was a classic triangular arrangement where Lobster arranged for the provision of a Heidelberg printing press and finance with CAF . The contractual position will be familiar, a hire agreement between Lobster and CAF , a warranty agreement between Lobster and Heidelberg and a service agreement between the same. The judge, Ramsey J, gave a detailed analysis of the contractual situation and examined each of the contracts to see whether they were reasonable in the circumstances.
For lessors, an important point was a comment that the judge made as follows:- “[Lobster] relied on [Heidelberg] and not on CAF in relation to whether the press was fit for the particular purpose for which [Lobster] were hiring it from CAF . Equally, given the involvement of [Lobster] and [Heidelberg]…. I consider that it would have been unreasonable for [Lobster] to rely on the skill and judgement of CAF .”
So, the relevant skill and judgement in the supply of the goods is usually not going to be that of the lessor. The protection that the clauses in most standard leases give regarding the exclusion of skill and judgement is still given some efficacy by the courts.
However, other exclusion provisions in the CAF contract terms and conditions were not acceptable to the judge in this case. In the lease it was stated that the letting of the press was made without any term, condition, warranty or stipulation, written or oral, express or implied, whether by statute or otherwise. This was not acceptable to the judge. Neither was the exclusion of liability “in contract or tort or otherwise for any loss or damage suffered by [Lobster] whether or not caused by the negligence of CAF ”.
As the judge decided that there was on obligation to provide a press of satisfactory quality so CAF were liable for the main defect in the press which was one of “image fit”. CAF are liable to pay damages to Lobster in the sum of £14,543.52. This was after the judge gave in an examination of the loss and the division of costs to rectify the problem that Lobster experienced.
CAF were, however, able to claim their termination sum due under the hire agreement. Lobster had stopped paying the rentals but the defect they complained of was not one that amounted to a repudiatory breach of the hire agreement by CAF . The hire agreement had the common clause that required continued payment of rentals even if the quote is unserviceable. The action by Lobster in stopping payment allowed CAF to terminate the hire agreement and claim their termination payment.
So, what can a lessor do? They should review their terms and conditions and, if required, include a clause that states the lessee has arranged with the original supplier/vendor of the goods to provide all warranties and repairs that may be required in relation to the goods. This might not provide immunity from quality issues but does give the customer some protection with respect to the supplier and gives them the benefits of obligations to repair that the supplier has given. These are, in the end, however, only as good as the supplier itself. The court was favourable to excluding Lobster’s claim for loss of profit, so it carefully drafted clause excluding consequential losses can be reasonable.
Clauses which exclude lessor liability are not viewed favourably but those which define the terms upon which the parties conduct their business are more likely to be acceptable. If the parties agree how they will each accept risks in the equipment then that would be acceptable. There is, therefore, the risk and reward argument with regard to whether or not something is reasonable and whether risks are divided by parties in accordance with their respective expertise and roles in the asset finance process. So if the lessor agrees to accept liability for the equipment then the customer should expect to pay higher leasse rentals; and also the opposite situation should be acceptable to the courts such that the customer has agreed with the lessor that the rentals are lower due to the customer having assumed more risk in the equipment not working properly. These would probably be viewed as reasonable and provide the required protection.
In the end, this case does represent an extension of application into a larger ticket leasing sector than previously, but lessors should always have been aware of these kinds of risks when putting together their standard lease terms and conditions.