A clause in a contract for the installation of a fire detection and suppression system in a factory excluded all but a limited liability. But when a fire occurred, by subrogation the insurers of the factory owner, Goodlife, sued the installer. The Court of Appeal had to decide if the clause was particularly unusual and/or onerous and, if it was, whether it had fairly and reasonably been brought to the factory owner’s attention. If it cleared those hurdles, was the clause unreasonable, and ineffective, under the Unfair Contract Terms Act?
The Court said that a “particularly onerous or unusual” condition will not be incorporated in a contract, unless it has been fairly and reasonably brought to the other party’s attention. The cases do not always agree as to what amounts to an ‘onerous’ clause; the fact that it is a limitation or exclusion clause does not of itself mean that it is onerous or unusual; everything turns on the context. Clauses limiting a specialist supplier or subcontractor’s liability to the (often modest) amount of the contract price, or excluding liability for indirect loss or loss of profit, have in recent times not been regarded by the courts as particularly onerous or unusual and the Court ruled that the exclusion clause was not particularly onerous and unusual and notice of it was fairly and reasonably given to Goodlife.
The clause was also reasonable under the Unfair Contract Terms Act, even though it was a stringent limitation of liability. A number of the cases have stressed the importance of terms freely agreed by parties of broadly equal size and status and the Court noted the reasonableness of the overall allocation of risk between the parties. Many of the cases also stress, in considering reasonableness, the ease or otherwise with which the parties could obtain insurance. Goodlife was best placed to effect insurance and had that insurance. And the exclusion clause said that if Goodlife wanted the installer’s liability to be reinstated, it would cost more but would give rise to insurance. Goodlife did not raise the issue at all before agreeing the contract.