In a recent court case, it was decided that numerous exclusions and limitations of liability by a supplier in its standard terms and conditions were unreasonable under the Unfair Contract Terms Act 1977 (“UCTA”). The supplier attempted to exclude its liability for (amongst other things) loss of profit, indirect loss and the quality of the goods supplied and it tried to limit its liability to the invoice price of the goods supplied.
The court considered four exclusions/limitations within the standard terms and held that they could not be relied upon by the supplier as they failed to meet the reasonableness test under UCTA. Matters which the court took into consideration and ultimately affected its decision;
1. the supplier was in a much stronger bargaining position than the purchaser;
2. there was no agreed specification for the goods (not reasonable for the purchaser):
3. the parties were aware that the purchased goods were to be irreversibly incorporated into other goods and so to limit liability to the cost of the purchased goods is not reasonable;
4. the exclusion of the obligations under the Sale of Goods Act relating to satisfactory quality and fitness for purpose were not replaced by another warranty.
It is worth remembering that businesses who contract on standard terms and conditions should not assume that exclusions and limitations used within those terms will automatically protect them. Similarly, SME’s who contract with large suppliers on the latter’s standard terms may not have to accept such exclusions/limitations.
Suppliers might want to review their standard terms in light of this decision and ensure that appropriate qualifications are introduced to any provisions which might be considered unreasonable.