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Sector Insights

Exclusion clauses and reasonableness under UCTA: further clarifications

16.10.2018 Energy & infrastructure

Chris Kidd

Chris Kidd Head of Shipbuilding and Offshore Construction, Partner

Margot Wastnage

Margot Wastnage Consultant Associate

The Court of Appeal decisions in two recent cases clarify the position as to when an exclusion clause might be subjected to UCTA’s reasonableness test and also give further guidance as to when a clause will be deemed unreasonable and, therefore, unenforceable.

Despite the limited application of the Unfair Contract Terms Act 1977 (UCTA) to “international supply contracts”, exclusion clauses to which it does apply may be unenforceable pursuant to section 11 if they are deemed unreasonable, even where they have been accepted by the parties at the time the contract was signed.

The Court of Appeal has recently affirmed a decision of the Technology and Construction Court on which we reported in our October 2017 Bulletin (Goodlife Foods Limited v Hall Fire Protection Limited [2018] EWCA Civ 1371). The exclusion clause in this case was held to have been properly incorporated and, despite being widely drafted, was not particularly onerous or unusual by reason of the parties’ bargaining power, experience in the sector and the availability of insurance cover for the type of risk in question. The court also approved the trend in UCTA cases which has been “towards upholding terms freely agreed, particularly if the other party could have contracted elsewhere and has, or was warned to obtain, effective insurance cover” which is an important point to remember when drafting contractual exclusion clauses.

In the same week, the Court of Appeal also rendered a judgment regarding non-reliance clauses being subject to the reasonableness test in First Tower Trustees Ltd and another v CDS (Superstores International) Limited [2018] EWCA Civ 1396.

In this case the landlord, in its responses to pre-contractual enquiries, represented that it was not aware of any contamination problem in the warehouse it was about to let and confirmed that, pending completion, it would notify the tenant on becoming aware of anything which might cause any of its responses to be incorrect. Prior to completion, the landlord became aware of asbestos contamination on the property but did not provide this information to the tenant. 

The lease contained a non-reliance clause as follows:

“The tenant acknowledges that this lease has not been entered into in reliance wholly or partly on any statement or representation made by or on behalf of the landlord.”

It was accepted by the court that the representation given by the landlord was false. The issue was whether the non-reliance clause triggered section 3 of the Misrepresentation Act 1967, which provides that terms which exclude or restrict liability for misrepresentation must satisfy the reasonableness test under section 11 of UCTA. Section 3, due to its link with UCTA, equally does not apply to international supply contracts.

The Court of Appeal confirmed that the non-reliance clause was an exclusion clause as it excluded liability for misrepresentation, and that in this case the clause was unenforceable because it was not reasonable. The clause also defeated the purpose of raising pre-contractual enquiries in the first place. The judgment clarified the issue as to whether non-reliance clauses could be subjected to section 3 of the Misrepresentation Act, an issue which had received conflicting treatment in first instance courts. The court disagreed that the sophistication of the parties had any part to play in determining whether a clause fell within section 3 but was relevant as to whether it was fair and reasonable to include the term. 

Non-reliance clauses are commonly included as part of the “boilerplate” provisions in commercial agreements. It is however important to remember that, where UCTA applies to the contract, the clause may be subject to the reasonableness test and attract the scrutiny of the court. Its terms should therefore be carefully considered before inclusion like those of any other clause of the contract.  

Article authors:

Chris Kidd Margot Wastnage