Regus (UK) Ltd v Epcot Solutions Ltd

An exclusion of liability for loss of business, profits, anticipated savings, data, third-party claims and consequential loss may satisfy the reasonableness requirement under the Unfair Contract Terms Act 1977. Such an exclusion does not remove the ordinary remedy for diminution in the value of defective services or reasonable mitigation costs.

Reasonableness is assessed in the round by reference to the circumstances when the contract was made. Relevant considerations include the parties’ experience, awareness of the term, negotiating strength, available competition and their relative ability to insure. Remote possibilities should not determine the assessment. A distinct limitation of liability may also be severable from an unenforceable exclusion where it is independent and serves a different purpose.

Regus supplied serviced office accommodation to Epcot under its written standard terms. The air-conditioning at the Stockley Park premises was defective. HHJ Mackie QC found that Regus had negligently breached the contract and held that clause 23, which excluded specified business and consequential losses and limited other liability, was unreasonable under the Unfair Contract Terms Act 1977 because it left Epcot without a remedy.

Regus appealed from the London Mercantile Court. Epcot conceded that diminution-in-value damages remained available, limited its counterclaim to £50,000 and accepted that the limitation provision could be severed from the exclusion. The central issues were whether the exclusion was reasonable and whether the separate limitation would survive if the exclusion were ineffective.

1. Appeal allowed. Clause 23(3), properly construed, satisfied the reasonableness requirement under the Unfair Contract Terms Act 1977. Clause 23(4) was also reasonable and was severable from clause 23(3).

2. The exclusion of business, profit and consequential losses did not deprive the customer of every remedy. The clear prima facie measure for defective services was the diminution in the value of the services promised. Depending on the most efficient method of assessment, this could be reflected by a percentage reduction in the fees. Reasonable expenditure on alternative services or premises could also be recoverable as mitigation loss. A corporate claimant could not recover non-pecuniary damages for discomfort, inconvenience or distress, but that did not remove its diminution-in-value claim.

3. Clause 23 did not exclude liability for fraud or wilful, reckless or malicious damage. Acceptance of liability for deliberate or negligent acts did not mean that the words “in any circumstances” excluded liability for dishonest or malicious conduct. An intentional failure to spend money on repairs fell far short of a deliberate attempt to harm customers.

4. The reasonableness inquiry had to consider the clause as a whole and the circumstances when the contract was made. It should not be controlled by remote or unlikely scenarios. Epcot’s principal was an intelligent and experienced businessman who knew the terms, had previously contracted on them and used a comparable exclusion in his own business. Epcot negotiated energetically, had access to local competitors and suffered no material inequality of bargaining power. It was also more practical for each customer to insure its own particular business risks than for Regus to insure the changing risks of all customers.

5. Although an appellate court ordinarily accords the trial judge’s assessment of reasonableness the utmost respect, a fresh assessment was appropriate because the judge’s conclusion rested on an error about the clause’s scope and the remedies remaining available.

6. Clause 23(4) was an independent limitation provision serving a different purpose from the exclusion in clause 23(3). It would therefore survive even if clause 23(3) were unenforceable. Damages for the defective air-conditioning remained to be assessed by reference to diminution in value, subject to the contractual limit.

1. Court of Appeal (Civil Division): The appeal was allowed. The court held that the exclusion and limitation provisions were reasonable and that the limitation was severable.

2. London Mercantile Court: HHJ Mackie QC found negligent breach arising from defective air-conditioning but held clause 23 unreasonable and unenforceable under the Unfair Contract Terms Act 1977 because it was understood to leave Epcot without a remedy.