Many people, particularly lawyers, may think it reasonable that if you contract on particular terms written down in black and white, you ought to be held to those terms in the event of a dispute. Two recent decisions of the Technology and Construction Court suggest that this is not necessarily always the case.
The cases of The Trustees of Ampleforth Abbey Trust v Turner & Townsend Project Management and Allen Fabrications v ASD both considered the enforceability of limitation clauses. It is clear that whether a limitation clause is effective or not is a much more complex matter than contracting parties' may think and a lot will turn on the circumstances of a particular case. What can be said is that it would be misguided to assume that limitations or exclusions contained in standard terms or appointments will automatically be enforced by the Court.
Ampleforth v TTPM - Limitation not effective
This case had a number of different aspects to it which I have considered in more detail in my recent article (add hyperlink). Turner & Townsend (TTPM) were employed by the Trust as Project Manager for the construction of the new Ampleforth College. Turner & Townsend were held liable for failing to facilitate the execution of a formal building contract resulting in the loss to the Trust of liquidated damages for late completion which it would otherwise have been entitled to. One aspect Judge Keyser QC was asked to consider was whether a limitation of liability in the Project Manager's standard terms to "the fees paid to them or £1 million whichever is the less" was enforceable.
The key consideration in both Ampleforth and Allen was (1) whether the limitation clause was incorporated into the standard terms and (2) if it is so incorporated, whether the clause could be considered to satisfy the test of "reasonableness" set out in the Unfair Contract Terms Act 1977 (UCTA). In considering the circumstances of the case in Ampleforth, it was held that the limitation (1) was incorporated but (2) was not reasonable in terms of UCTA and could not be enforced. There were several interesting aspects to the reasoning in this case, including:-
- Although there was no signed copy of the Appointment (with the Trust arguing that only the fee proposal had been accepted) the Appointment terms had been properly incorporated. It was unreasonable to separate the fee proposal and the terms and acceptance of the fees was objectively understood to include acceptance of the basis on which the fees were proposed.
- The limitation was not reasonable under UCTA. The determinative factor in reaching this conclusion was the fact that the same appointment obliged TTPM to maintain PI at £10 million. A limitation of £111k (the fees paid) against an obligation to maintain PI at £10million was inconsistent and would render the majority of the insurance cover illusory, the cost of which was passed on to the Trust as part of TTPM's fees.
- The limitation was not present in two previous projects where TTPM had been employed by the Trust and to introduce the term now was "draconian… without specific notice and any discussion." This was the case despite the fact, as the judge acknowledged, that "the contract between the Trust and TTPM was freely made and that the limitation was plain to be read and easy to understand."
Allen Fabrications v ASD - Limitation effective
In this case, Allen were responsible for the supply of platforms used to lift boats at a marina. The supply of grating and clips was sub-contracted to ASD. An Employee suffered serious injuries when a section of the grating gave way, which the Employer settled at £7million before seeking to recoup that from the various parties responsible for the platform. Allen alleged that ASD were negligent in failing to provide an adequate number of fixings. ASD's standard terms contained a limitation of liability to the price of the goods. This time, Judge Waksman QC held that (1) again, the limitation was incorporated in to the standard terms, but this time (2) the limitation was reasonable under UCTA and so could be enforced. The reasoning in this case included:-
- Although there was no signed contract for this transaction, ASD's standard terms were incorporated into the contract between the parties either expressly through the acceptance of a credit facility some time previously (even though no such acceptance could be produced) or failing which, because of a prior course of dealing between the parties using these documents which inferred that the parties intended to contract on those terms.
- The context is critical when assessing whether a clause is "onerous" and therefore subject to scrutiny under UCTA. As such clauses were common in the business in which both Allen and ASD operate (and given that Allen themselves had a very similar limitation in their own standard terms) it was not unreasonable for such a clause to be included and Allen might have expected such a limitation to be there even though they did not read the actual clause.
- Allen had appropriate insurance in place which was evidence of one way Allen sought to protect itself from the recognised risk of buying goods from clients such as ASD who used such clauses.
Do these cases make the law any clearer?
So what can we learn from these cases? All that can be said with any certainty is that the enforceability of limitation and exclusion clauses very much turn on the specific facts of each case. The cases throw up many unanswered questions - for example, what if TTPM had to maintain PI of £1million instead of £10million? Would that have made the limitation reasonable? What if TTPM had brought the limitation to the Trust's attention? What if ASD had greater bargaining power than Allen? It seems that the following general principles apply:-
- The Court will generally consider the maintenance of insurance to be a key consideration when assessing the reasonableness of a limitation.
- "Sneaking in" limitations and exclusions to standard terms, particularly when contracting with naïve clients, is unlikely to be looked upon favourably by the Court. Specifically drawing the other parties attention to such clauses will make them more likely to be enforceable.
- The strength or bargaining position of the parties is a relevant factor. Limitations are more likely to be enforceable where an experienced, commercially aware party are on the receiving end of them, with a greater duty to draw attention to these clauses to an inexperienced party (such as the Trust).
- Parties that are represented or have taken legal advice would very likely be deemed to have accepted any limitations. Limitation clauses are therefore likely to be less enforceable against unrepresented parties (depending on their commercial strength).
- The practices in a particular industry are also important. Where limitation clauses are common in a certain industry (e.g. in platform supply as in Allen's case) they are more likely to be enforceable as it will be easier to infer actual knowledge of those terms.
The key consideration for consultants is to ensure that they are clear and direct when it comes to using limitation or exclusion clauses - burying these in terms and conditions might well render these clauses completely meaningless. They might slip by the other side unnoticed, but the same may not be said about the Courts if they ever needed to be relied upon.