In a recent decision of the Technology and Construction Court, HHJ Davies provided further guidance on the interpretation of exclusion clauses and the approach that may be taken when a clause goes too far.
In Goodlife Foods Ltd -v- Hall Fire Protection Ltd  EWHC 767 (TCC), Goodlife alleged that Hall was liable for a fire at its premises and claimed losses in excess of £6 million in respect of property damage and business interruption losses. A fire had broken out in an industrial frying machine at Goodlife’s factory in Warrington and it was alleged that the fire was caused by a failure in a fire suppression system designed and installed by Hall. Hall argued that an exclusion clause contained within its standard terms and conditions, which had been incorporated into the contractual relationship with Goodlife, had validly excluded all claims for negligence and that it was not liable to Goodlife.
The clause in question excluded all liability, loss, damage or expense 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… for whatever reason.’
The Unfair Contract Terms Act 1977 (UCTA) applies to clauses which seek to restrict or exclude business liability. With supply contracts, any terms in a company’s standard terms which seek to exclude or restrict liability are likely to be caught by UCTA. In this case, Hall was seeking to exclude its liability for negligence:
- Section 2(1) of UCTA provides that ‘a person cannot by reference to any contract term… exclude or restrict his liability for death or personal injury resulting from negligence.’
- Section 2(2) of UCTA provides that ‘in the case of other loss or damage [other than death or personal injury], a person cannot so exclude or restrict his liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness.’
Goodlife contended that the above exclusion was so widely drafted that, in essence, it was an attempt by Hall to exclude all kinds of loss and that reference to excluding damage to persons was an attempt to exclude liability for personal injury and death, which was prohibited by UCTA. Goodlife contended that the whole clause therefore had no effect and Hall was liable. Hall disputed Goodlife’s interpretation of the clause suggesting it did not intend to have the effect as alleged because of the provisions of UCTA.
The judge, on considering the arguments and the wording in the clause, decided that the words ‘damage caused to your persons’ were clear and unambiguous and did seek to exclude liability for personal injury or death and as such breached Section 2(1) of UCTA.
Having made such a finding, HHJ Davies then went on to consider what the effect of this had on the exclusion clause. Did his finding mean that the exclusion clause was rendered unreasonable in its entirety or were only those words referring to damage to persons rendered unreasonable?
The judge chose to follow an earlier case of Trolex Products Limited -v- Merrol Fire Protection Engineers Limited (1991) and determined that where a clause seeks to exclude liability for death or personal injury and also liability for other kinds of loss or damage, the former offending part of the clause can simply be excised and the remainder upheld as reasonable if it is appropriate to do so.
Accordingly HHJ Davies held that after the offending words had been excised, the remaining words of the exclusion clause did reasonably exclude any liability (for the purposes of Section 2(2) UCTA) that Hall had to Goodlife in negligence and Goodlife’s claim as pleaded could not succeed and was dismissed. In assessing whether the clause was reasonable the judge took into account the following factors:
- the parties had roughly equal bargaining positions
- there were other options available to Goodlife and it could have bought the fire suppression system elsewhere
- Hall had raised the issue of Goodlife insuring against fire risks.
In light of these, the exclusion clause sought to reasonably allocate risk between the parties and was enforceable to exclude Hall’s liability for negligence.
While ultimately HHJ Davies was prepared to find that the exclusion of liability clause did prevent Goodlife’s claim continuing, it does demonstrate the risks in drafting exclusion clauses. Particular care is required to ensure that such clauses do not fall foul of the provisions of UCTA and are not drafted in a manner which render the whole clause unreasonable and of no effect.
The courts will, where appropriate, apply the ‘blue pencil’ test to get to the right result but it will always be preferable to get your drafting right in the first place.
Exclusion clauses cannot be drafted or negotiated without reference to the specific facts behind the contract and the parties should always attempt to identify the risks at the outset, consider ways in which those risks can be mitigated and consider the options for insurance cover available.