Shepherd Homes Ltd v Encia Remediation Ltd

A contractual limitation clause may be incorporated where the relevant document gives reasonable notice that contractual conditions apply. An unusually onerous term requires more prominent notice, assessed in the context of the transaction and the parties. A reply which changes the allocation of risk is a counter-offer, but a contract may still arise when that counter-offer is accepted. Confirmation of professional indemnity insurance does not, without more, displace a contractual cap, waive it or create an estoppel. Under Unfair Contract Terms Act 1977, reasonableness depends on the circumstances known or contemplated when the contract was made, including the parties’ bargaining positions, alternative suppliers, available resources and insurance.

Shepherd Homes Ltd engaged Encia Remediation Ltd to undertake groundworks and piling for a housing development. Encia engaged Green Piling Ltd as specialist piling subcontractor. Green Piling’s offer incorporated its standard terms, including clause 4.3, which limited total liability to the contract price.

Encia’s response accepted the price but allocated to Green Piling all risks arising from ground conditions varying from its initial assessment. Green Piling subsequently accepted that counter-offer. At a later meeting, Green Piling confirmed professional indemnity insurance of £1 million in the aggregate. The preliminary issues concerned incorporation, contract formation, revision or waiver of the cap, estoppel and enforceability under the Unfair Contract Terms Act 1977.

1. Clause 4.3 formed part of Green Piling’s offer because the offer expressly referred to attached documents which included its standard terms. Encia’s Contracts Director had read the terms. Even if he had not, the notice would have been sufficient. The ordinary notice rules discussed in Parker v South Eastern Railway Company [1877] 2 C.P. 416 were satisfied.

2. The requirement for enhanced notice of an onerous or unusual term is context-sensitive. The cap was not particularly unusual in this commercial setting, where other piling contractors used similar limitations. In any event, the clear, legible one-page terms fairly brought the clause to Encia’s attention.

3. Encia’s letter of 29 June 2001 was not an acceptance because it materially altered the allocation of risk for unforeseeable ground conditions. It was a counter-offer on Green Piling’s terms, subject to that qualification. Green Piling accepted it by its letter of 9 July. The same terms governed Phase II.

4. The insurance discussions did not revise the counter-offer, waive clause 4.3 or create an estoppel. The pile-head indemnity was distinct from the piling contract and was not subject to the cap. Insurance confirmation therefore had meaning without making the contractual cap disappear or increasing it to £1 million.

5. Clause 4.3 satisfied the requirement of reasonableness under sections 3 and 11 of the Unfair Contract Terms Act 1977. Relevant considerations included Encia’s superior bargaining position, its alternative suppliers, its knowledge of the terms, Green Piling’s limited resources, the availability and scope of insurance, and the fact that the insurance also related to other liabilities and the indemnity.

6. The court declared that clause 4.3 was incorporated, enforceable and not displaced by revision, waiver or estoppel.