Exclusion clauses

Excluding liability for negligence was reasonable – Goodlife Foods Ltd v Hall Fire Protection Ltd [2017] EWHC 767 (TCC)

The question

Can a widely-drawn exclusion of liability which excludes liability for all negligence be reasonable under the Unfair Contract Terms Act 1977 (UCTA)?

The facts

Goodlife contracted with Hall Fire to design, supply, install and commission a fire detection and suppression system at Goodlife's frozen food production factory.  A fire broke out at the factory, which Goodlife claimed led to £6 million of property damage and business interruption losses.  Goodlife claimed that Hall Fire was liable for the losses caused by the fire, as it happened as a result of a failure or malfunction in the fire suppression system.  The claim was in negligence rather than breach of contract for limitation reasons.

Hall Fire sought to rely on the exclusion clause contained in clause 11 of their standard terms and conditions, which stated that:

“We exclude all liability, loss, damage or expense consequential or otherwise 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 by us for whatever reason “.

Goodlife challenged the incorporation and enforceability of clause 11.

The decision

The Court decided that:

• the clause was not particularly unusual or onerous, but in any event it had been sufficiently drawn to Goodlife's attention.  Goodlife had the opportunity to read the terms and conditions and it has access to appropriate advice

  
  

• the court agreed with Goodlife that the exclusion did purport to exclude liability for personal injury or death (which is not permitted under section 2(1) UCTA).  The question was then whether this rendered the whole exclusion clause unreasonable and of no effect

  
  

• Goodlife tried to rely on the Court of Appeal decision in Stewart Gill v Horatio Myer [1992] EWCA 6 as authority that severance of the offending part of the clause was not permissible.  However, the Court distinguished Stewart Gill and relied instead on the Court of Appeal decision in Trolex Products Ltd v Merrol Fire Protection Engineers, which held: “[I]f part of a term is ineffective by reason of section 2(1), the remainder can nevertheless be upheld as reasonable”.  The Court stated (obiter) that it would have found, if necessary, that the clause could not have been severed and so would have been unreasonable

  
  

• Goodlife further submitted that clause 11 was unreasonable because its scope was extremely wide and therefore Goodlife received very little benefit/protection. 

Interestingly, whilst the Court accepted the clause was wide, it considered this was a fair allocation of risk between parties of equal size and bargaining power.  This was particularly the case where Goodlife was likely to have its own insurance and, if there was a shortfall, it could have protected itself by additional insurance (Hall Fire offered to arrange cover for an additional payment within its terms).  Goodlife was not being deprived of all recourse or being left with an insurable risk.

Why is this important?

This case demonstrates that Courts will not necessarily find widely drafted exclusion clauses to be unreasonable under UCTA and how the Courts will interpret broad exclusions of all negligence.

It also shows that the availability of other remedies or recourse, including insurance, will be relevant to whether the exclusion is reasonable.

Any practical tips?

Regardless of the Court's decision to uphold Hall Fire's exclusion clause, best practice is to expressly carve out matters that cannot be excluded/limited (e.g. death/personal injury caused by negligence, fraud, etc.).  Exclusions/limitations should be divided into separate clauses/sub-clauses so they are severable if necessary.  Ensure there are other effective remedies available, whether within the agreement or externally (e.g. insurance), particularly where exclusions apply.