Regus (UK) Ltd v Epcot Solutions Ltd

A contractual exclusion clause must leave a real remedy for serious failure to provide a basic contracted service. It may be reasonable to exclude loss of profits and consequential losses, but a broadly drafted exclusion which, together with a financial cap, prevents recovery for inadequate performance may fail the requirement of reasonableness under the Unfair Contract Terms Act 1977 and be wholly ineffective if it cannot be severed. Where fees are withheld for defective services, “outstanding fees” may need to be assessed net of legitimate claims arising from the same performance.

Regus claimed unpaid fees from Epcot for serviced office accommodation. Epcot counterclaimed for misrepresentation, breach of contract and losses arising from defective air conditioning at its Stockley Park premises. The court rejected the alleged misrepresentations but found that the air conditioning was defective and that Regus had been negligent. The principal legal issues were whether the contractual liability exclusion was effective under the Unfair Contract Terms Act 1977, what damages were available, and whether Regus was entitled to suspend services for outstanding fees while Epcot asserted claims against it.

1. Liability for defective service. Air conditioning formed part of the services promised under the agreement. Its inadequate provision was a breach of contract. Regus was also negligent within clause 23 of its standard terms, having failed to carry out urgent and significant repairs after being put on notice of the defects (paras 34, 38 and 41).
2. Effect of clause 23. The clause fell within section 3 of the Unfair Contract Terms Act 1977. Although it was reasonable in principle to restrict liability for loss of profits and consequential losses, the clause was unreasonable insofar as it left Epcot with no effective remedy for failure to provide a basic service. The financial limitation gave only an illusion of a remedy because the broad exclusion of financial losses prevented Epcot from establishing the liability which the limitation purported to control. Clause 23 was therefore of no effect, and could not be severed (paras 40–50).
3. Damages. Epcot could recover loss caused by the air-conditioning failures. The ordinary measure would be a percentage deduction from the fees paid, unless specific additional loss could be proved. Generalised claims for loss of business, franchise revenue or investment required reliable contemporaneous evidence and were viewed sceptically on the evidence then available (para 51).
4. Suspension of services. Clause 39 had potentially penal consequences and was construed against Regus. “Outstanding fees” meant fees net of the value of legitimate claims arising from the performance of the services. Regus could not rely on the clause unless Epcot’s damages claims were worth less than the fees outstanding at the date of suspension. The related issue of repudiatory breach required further assessment after the damages issues were determined (para 52).
5. The misrepresentation and relocation-cost claims, as pleaded, failed or were not determined on the merits. Further directions were to be given, with the court urging a realistic approach to the remaining issues and costs (paras 32, 39 and 53).

First-instance judgment. No prior appellate decision is stated in the judgment.