High Court finds limitations of liability unreasonable under UCTA article banner image

In the recent case of Saint Gobain Building Distribution Ltd v Hillmead Joinery (Swindon) Ltd a Judge in the Technology and Construction Court has decided that various limitations of liability in standard term contracts were, in principle, unreasonable under the Unfair Contract Terms Act 1977 (UCTA).

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The ruling was made in a case where a claim for the invoice price of goods sold and delivered was met with a counterclaim that the defendant had suffered considerably greater loss from the claimant supplying the defendant with other goods that were allegedly defective.

Although turning very much on its facts, the judgment is noteworthy for the reasoning behind its conclusion that various exclusions and limitations of liability in a standard term B2B contract were unreasonable under UCTA.  The conclusion was reached despite the fact that the standard terms offered replacement of the goods or compensation limited to the invoice value of the goods in the event of certain kinds of defects and defaults (provided an inspection and notification procedure was observed by the buyer promptly on delivery).  In addition, a clause excluding all liability for the usual categories of indirect or consequential loss was held to be unreasonable and ineffective in blocking a counterclaim for loss of business and the cost of diverted staff time.

The counterclaim failed because, on the facts, the court found that the goods were of satisfactory quality and there was no obligation to supply goods fit for purpose.  As such, the claimant had incurred no liability for the limitation clause to bite on.  However, the reasoning suggests that the courts will be reluctant to enforce standard terms that would have the effect of blocking any remedy in certain circumstances, even if the claimant is given the right to replacement or limited compensation in other circumstances.

Chris Harper is a partner and head of the dispute resolution team in Exeter. He specialises in commercial litigation and is named as a leader in his field by independent guides to the legal profession Legal 500 and Chambers. To contact Chris please call 01392 210700 or email drx@stephens-scown.co.uk.