The Court of Appeal has recently provided guidance on the extent to which suppliers may limit liability under service contracts.

In Regus (UK) Limited -v- Epcot Solutions Limited [2008] EWCA Civ 361 Rix LJ considered a limitation clause which contained fairly standard commercial terms. Regus agreed to provide serviced office premises to Epcot under the contract. The air conditioning in the premises failed and Epcot claimed against Regus for damages, including for loss of opportunity to develop its business. The clause in question excluded damages for loss of profits and consequential losses. There was a further contractual limitation, again in quite usual terms, limiting damages to £50,000 or 125 per cent of fees paid under the contract to the date of claim. The issue before the court was whether these limitations were sufficiently reasonable such that they satisfied the reasonableness test in section 3 of the Unfair Contract Terms Act 1977 (UCTA). The court held that the limitations were reasonable in the circumstances and did satisfy section 3 of UCTA. The Court of Appeal decision overturned the High Court’s finding that the limitations were unreasonable and in contravention of section 3.

The Court of Appeal placed particular emphasis on the following factors:

• The parties were of equivalent bargaining power • Epcot’s managing director was aware of the limitations but did not seek to negotiate them • There was specific wording in the limitation clause advising customers to insure against the liability excluded.

These factors are consistent with statutory aids to determining reasonableness in Schedule 2 of UCTA. Suppliers will be reassured by the Regus case - and can be more confident that standard exclusions and limitations in their service contracts will be upheld, if tested.

The full text of the judgment is available at



...recent case law has provided guidance on the extent of a contracting party’s discretion when the contract is silent on the issue.

In Socimer International Bank Limited (in liquidation) -v- Standard Bank London Limited [2008] WLR [D] 58 a securities trading agreement between two banks required the creditor bank to value certain assets of the defaulting debtor bank at the date of termination of the agreement. The court held that whilst the creditor bank was required to carry out the valuation honestly, rationally and not arbitrarily, there was no obligation to apply objective criteria in carrying out its valuation or to take reasonable care in determining a market valuation. The contract did not expressly require such an approach and the court held there was no necessity to imply a term requiring that approach. The decision reinforces established law that:

  • a term will not be implied into a contract unless it is necessary to give the contract business efficacy; and
  • at least in a commercial context, whilst courts will be careful to see that the exercise of a contractual discretion should not be abused, they will not prescribe how a discretion should be exercised.

While the case is helpful guidance in the areas of implied contract terms and limits on contractual discretion generally, it provides specific guidance on the applicable principles in interpreting contractual valuation provisions where the obligation is placed solely on one contracting party. In the absence of any obligation to apply objective criteria, the valuing party will be free to reach its own subjective valuation provided it acts rationally and in good faith. Whether there is any further limit on the party’s discretion will depend on the provisions of the contract and, as usual, an assessment of the intentions of the parties.

The full text of the Socimer case is available at: