Businesses entering into contractual relationships frequently attempt to limit or exclude their liability to other parties. A recent Scottish case underlines the importance of ensuring that the wording of exclusion or limitation clauses is clear and unambiguous.
Dundee City Council required stone chippings for road maintenance. It accepted a quote from Geddes. The parties entered into contracts for the supply of chippings, all of which incorporated Geddes’ standard terms and conditions. Within months there were widespread failures of the road surfaces. Investigations by the Council suggested that this was due to the faulty composition of the chippings and it sought damages from Geddes for failing to supply goods of satisfactory quality or reasonably fit for their purpose.
Geddes denied that it was to blame for the problems with the road surface. Geddes also pointed to its standard T&Cs which, it said, restricted its liability. The Council argued that the clause was void for uncertainty.
The importance of clarity
Clauses that exclude liability will always be subject to close scrutiny by the courts. As Lord Woolman reminds us in this case, it is regarded as “inherently improbable” that one party will relieve the other of its obligations to provide redress in the event of a breach. While limitation clauses are not treated with the same hostility as exclusion clauses, they must be clear and unambiguous before they are given effect. Lord Woolman declined to give effect to the clause – why?
The clause provided that purchasers had to make a complaint in writing within 24 hours of delivery. This was, the court said, “an extremely tight timescale” and appeared “wholly unrealistic” in this context, where there was a good chance that any defect would be latent. The 24 hour period was qualified where there were “special circumstances” to justify delay. However the court said that the scope of the qualification was uncertain; it could be argued that the “special circumstances” would apply in virtually every case, or alternatively, that in the case of stone chippings, a latent defect did not amount to special circumstances.
Limitation and exclusion
The limitation and exclusion elements of the clause were “diametrically opposed” and could not be reconciled. The court rejected the argument that it should delete the part of the clause excluding liability and leave the remainder standing. To take that step the court had to ask an important initial question – would the deletion innovate on the contract? If the clause is meaningless, there is likely to be no difficulty. However, here, the two parts of the clause were inter-dependent, so deletion was not an option. The court also declined to insert words into the clause; there was no basis for doing so.
The case provides a clear reminder that any clause that purports to exclude or restrict liability must be clear and unambiguous. While the court always tries to adopt a construction that gives effect to the contractual term, it cannot rewrite the parties’ contract. You can read the casehere.