Goodlife Foods Ltd v Hall Fire Protection Ltd

An exclusion or limitation clause is not particularly onerous or unusual merely because it restricts liability extensively. Its character depends on the commercial and contractual context. If it is particularly onerous or unusual, the notice required for incorporation increases with its outlandishness.

Under the Unfair Contract Terms Act 1977, reasonableness is assessed when the contract is made and by reference to the term and contract as a whole. In a commercial contract between parties of broadly equal bargaining power, a stringent limitation may be reasonable where the customer could contract elsewhere, received adequate notice, was best placed to insure the risk, and could obtain wider liability for an increased price.

Goodlife Foods Ltd engaged Hall Fire Protection Ltd to supply and install a fire-suppression system for £7,490. About ten years later, a fire allegedly caused property damage and business-interruption losses of approximately £6.6 million. Goodlife's contractual claim was time-barred, but it pursued a negligence claim to which the contractual allocation of responsibility remained relevant.

Hall Fire relied on clause 11 of its standard conditions. The clause excluded most liability for loss caused by negligence or system failure, preserved a limited warranty for defective components, and offered wider insurance cover at additional cost. The Technology and Construction Court, in [2017] EWHC 767 (TCC), held that the clause was incorporated and reasonable.

The appeal concerned whether the clause was particularly onerous or unusual, whether adequate notice had been given, and whether it satisfied the reasonableness requirement of the Unfair Contract Terms Act 1977.

1. Appeal dismissed. Coulson LJ, with whom Moylan and Gross LJJ agreed, upheld the judge's conclusions that clause 11 was incorporated and reasonable. Evaluative first-instance decisions on incorporation and statutory reasonableness should be respected unless affected by an erroneous principle or plainly wrong.

2. Clause 11 was not particularly onerous or unusual. A limitation or exclusion is not onerous merely by reason of its legal form. The clause had to be considered within a modest, one-off supply contract, without continuing maintenance obligations, under which the contractor otherwise faced potentially unlimited liability for future events. It was not a blanket exclusion because it preserved a limited but valuable warranty and offered wider liability through insurance at additional cost.

3. In any event, Hall Fire fairly and reasonably brought the clause to Goodlife's attention. The quotation expressly referred to the conditions, the conditions were supplied twice in legible form, and their opening warning identified their far-reaching effect. Goodlife had more than a year to consider the conditions and obtain advice. The more outlandish a clause is, the greater the notice required, but the notice here satisfied that standard.

4. The common-law incorporation inquiry and statutory reasonableness under the Unfair Contract Terms Act 1977 are separate controls, although relevant considerations may overlap. Under sections 2 and 11, Hall Fire bore the burden of establishing reasonableness at the time of contracting.

5. Clause 11 was reasonable. The parties had broadly equal bargaining power; Goodlife could have selected another supplier; and adequate notice had been given. Insurance was a critical factor. Goodlife knew its property and business-interruption exposure and was best placed to insure it. Clause 11 also made clear that Hall Fire could accept wider liability through additional insurance and an increased price.

6. The clause did not impermissibly undermine Hall Fire's core obligation. The parties' obligations and allocation of risk had to be determined from the contract as a whole, including clause 11. In a commercial agreement freely made between parties of broadly equal bargaining power, that allocation was reasonable. The negligence claim therefore could not succeed.

1. Court of Appeal (Civil Division): The court unanimously dismissed the appeal and upheld the incorporation and reasonableness of clause 11: [2018] EWCA Civ 1371.
2. Technology and Construction Court: His Honour Judge Stephen Davies determined the preliminary issues in Hall Fire's favour, holding that clause 11 was incorporated and reasonable under the Unfair Contract Terms Act 1977: [2017] EWHC 767 (TCC).