A company, Epcot, entered into an agreement with Regus for the use of serviced office accommodation. The agreement was subject to Regus’ standard terms and conditions, which purported to exclude liability "in any circumstances" for "loss of business, loss of profits, loss of anticipated savings, loss of damage to data, third party claims or any consequential loss". They also purported to limit the extent of its liability "in respect of all other losses, damages expenses or claims". Epcot made several complaints to Regus that the air conditioning system was not functioning effectively and that this was having a detrimental effect on its business. Regus failed to repair the air conditioning system and eventually litigation ensued.
Regus sued Epcot for unpaid fees up to the end of the agreed term. Epcot counter-claimed for damages for loss of profits, loss of the opportunity to generate profits, and for distress, inconvenience and loss of amenity.
The court held that by failing to repair the air conditioning system, Regus was in breach of its obligation to provide airconditioned offices. Epcot was therefore entitled to recover damages for any loss that it suffered, subject to the efficacy of the exclusion clause in the terms and conditions. The court considered that, while the clause provided the illusion of a remedy by only limiting the extent of liability, because the wording of the exclusion of financial losses was so broad, it effectively deprived Epcot of any remedy in respect of Regus’ breach. The exclusion therefore fell foul of the test of reasonableness under the Unfair Contract Terms Act 1977 (UCTA) and Epcot was entitled to recover damages for the losses it suffered as a result of the airconditioning failures.
Exclusion and limitation clauses are a very useful way of managing potential liabilities. However, this case demonstrates the importance, when drafting an exclusion clause, of striking the right balance and ensuring that the clause is not so widely drawn that it falls foul of the UCTA reasonableness test, rendering it unenforceable.