Last Bus Limited v Dawsongroup Bus and Coach Limited & Anor

A blanket exclusion in a finance company’s standard hire-purchase terms of liability for the quality of goods is prima facie unreasonable under the Unfair Contract Terms Act 1977. The creditor bears the burden of proving that the term was reasonable.

Commercial status and equality of bargaining power over price do not establish equality in respect of non-negotiable standard terms. Reasonableness requires an assessment of risk allocation in the full contractual setting, including available remedies, indemnities and insurance. The issue will ordinarily require a trial where material facts remain unknown, although summary determination is not categorically excluded.

Last Bus hired 30 coaches from Dawsongroup under five hire-purchase agreements. It alleged that defects caused fires and made the coaches unsatisfactory in quality. Dawsongroup relied on a standard-term clause excluding all liability for quality and related warranties.

Andrew Baker J, sitting in the Commercial Court, held that the clause excluded the statutory implied term and gave Dawsongroup summary judgment on the basis that the clause was reasonable: [2022] EWHC 2971 (Comm). Last Bus appealed only the finding on reasonableness. The central question was whether that fact-sensitive issue could properly be decided summarily on the available evidence.

Appeal allowed

1. Phillips LJ, with whom Singh and Bean LJJ agreed, held that the judge had adopted the wrong starting point. The Unfair Contract Terms Act 1977 applies to relevant commercial hire-purchase agreements and contracts on standard terms. It does not cease to apply merely because the customer is a substantial commercial party. The creditor bore the burden of proving that the exclusion was reasonable.

2. Equality of bargaining power had to be assessed in relation to the exclusion term itself. Equality in negotiating price did not establish equality over terms. The evidence that Dawsongroup would not contract without the clause, and that no materially different hire-purchase terms were available, was capable of showing inequality in relation to that term. The decisions in Watford, Granville and Goodlife were applications of the statutory test in their particular circumstances, not a reversal of its burden or operation.

3. Following Purnell, and the approach adopted in Sovereign and Danka, a standard-term clause which excluded all liability for the quality of hired goods, potentially leaving the hirer to pay for wholly valueless goods without a remedy, was prima facie unreasonable. The judge wrongly treated the absence of alternative finance terms as the only factor against reasonableness. He failed to give proper weight to the clause’s legal and practical effect.

4. Reasonableness required examination of the whole tripartite arrangement. Dawsongroup’s contractual rights against EvoBus, including any indemnity, and the insurance position of all parties could materially affect the allocation of risk. EvoBus disputed that Last Bus had an enforceable contract against it and relied alternatively on its own exclusion clause. Those unresolved matters required a trial. The court expressed no view on the ultimate reasonableness of clause 5(b).

5. Appellate restraint concerning a first-instance assessment of reasonableness is strongest after a trial on full evidence. It did not apply with the same force to this summary determination. The summary judgment was therefore set aside and the claim against Dawsongroup was to proceed to trial.

• Court of Appeal (Civil Division) — allowed the claimant’s appeal and held that the reasonableness of the exclusion clause required a trial: [2023] EWCA Civ 1297 .
• High Court of Justice, Commercial Court — Andrew Baker J summarily dismissed the claim against Dawsongroup, holding that the exclusion clause was reasonable: [2022] EWHC 2971 (Comm) .