In the case of Lobster v Heidelberg,1 the High Court has ruled that the unreasonableness of a sub-clause in an exclusion clause that was otherwise reasonable resulted in the whole clause being rendered “unreasonable”.  

The Court ruled that the purported effect of the exclusion clause (in this case, in the Warranty and Services Agreements) was to exclude all liability for damage so that the supplier’s liability was limited only to replacing or repairing a defective part. The Court ruled that it was reasonable for the supplier’s only obligation for a defect to be to repair or replace the defective part. However, it was not reasonable to exclude all liability (including for “direct damage”, “immediate loss” or “increased cost and expense”). For example, if the Supplier failed to replace or repair the defective part then it would be unreasonable for a customer not to be able to recover the cost of getting a third party to do so.  

The Lobster case seems to indicate a slight departure from the case of Regus v Epcot2. In Regus, the Court of Appeal had indicated that unreasonableness in relation to one sub-clause would not necessarily render the whole provision unreasonable and unenforceable. In this case, the Court seems to be moving back to the position in Stewart Gill v Horatio Myer3; in effect, the Court is here less inclined to use the “blue pencil” test for exclusion clauses. The Court has followed Regus, however, in underlining that the availability of insurance to the customer (and in this case Lobster had taken out reasonable insurance) will have a bearing on reasonableness. Also, the Court is unlikely to fi nd an exclusion clause which effectively deprives a customer of any meaningful remedy to be reasonable.

The practical effect of all this is that the commercial contracts draftsman should consider separating out exclusion clauses to avoid a domino effect. It is especially the case if the supplier is attempting to sail close to the wind in relation to a particular exclusion and its reasonableness. The safest drafting course is to make each clause a stand alone provision (ie avoiding sub-clauses and common introductory language).