A recent case ‘Goodlife Foods Ltd v Hall Fire Protection Ltd’ has once again shown that the courts often place considerable importance on the availability of insurance in interpreting the validity (or not) of an exclusion of liability clause in a commercial contract.
The case of Goodlife v Hall Fire also shows the courts being generally supportive of businesses limiting liability through contractual terms (limitation and exclusion clauses are important in all commercial contracts, but particularly in the technology sector where potential losses can be far higher than the underlying contract value).
In May 2012, a fire broke out at Goodlife’s premises resulting in in losses of over £6 million. 10 years previously, Hall Fire Protection installed a fire suppression system which Goodlife later argued had failed to put out their fire. Unable to bring any action under the contract they had with Hall Fire due to the time that had passed (their statutory limitation period had expired), Goodlife brought a claim for breach of contract and/or negligence against Hall Fire.
Hall Fire’s standard terms excluded liability for any part of Goodlife’s claim for damages.
Both the trial judge and the Court of Appeal found in favour of Hall and felt that the exclusion of all liability for loss or damage linked to property or goods from negligence or malfunctioning of the fire system was not an onerous term and had been duly incorporated into the contract.
Was the exclusion clause particularly onerous or unusual? Even though there was a wide exclusion of liability, the court stressed that this had to be looked at in the overall context of the contract and highlighted that this was:
- a one-off supply contract,
- carried out by two relatively small organisations for a relatively small sum; and
- there were no ongoing maintenance obligations.
Given that all the judges felt that there was nothing particularly unusual or onerous in Hall trying to protect itself against unlimited liability arising in the future. In particular, the Court stressed that this was exactly the type of issue that should be covered by insurance – indeed, Hall had offered to accept wider liability in return for being paid to arrange insurance for Goodlife. This was not accepted by Goodlife.
Had the exclusion clause been fairly brought to Goodlife’s attention? Again, the two courts felt that it had: it was clearly set out as one of Hall’s standard conditions and was not in any way buried away in small print or an unusual part of the contract – the Court of Appeal felt that it would be “commercially unrealistic” to say that it had not been fairly and reasonably brought to Goodlife’s attention and added that, even if it had been a particularly onerous and unusual clause, it would still have been properly incorporated into the contract.
Was the exclusion clause reasonable in relation to the Unfair Contract Terms Act? Again, the courts gave a resounding yes:
- commercial parties of equal bargaining strength should generally be bound by their terms;
- Goodlife had been given the option of paying an additional sum for insurance which would have reinstated potential liability;
- finally, the Court felt that it was reasonable for one party to attempt to exclude liability for the vast majority of damage that might arise from its own defective performance.
Overall, this recent decision is a further reminder of the recent trend of courts looking to uphold exclusion limitation clauses freely entered into between commercial parties and recognising that insurance is a key factor which will often support the validity of an exclusion clause.
The moral of the story: do not pin your hopes on later arguing that a limitation/exclusion clause is too wide or onerous; it is far better to negotiate suitable amendments to the contract at the outset and/or take out insurance to cover the potential losses arising.
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