Court Strikes Down Exclusion Clause

Exclusion clauses in standard terms of business are vulnerable to attack under the Unfair Contract Terms Act ("UCTA"). UCTA renders unenforceable exclusion clauses in standard terms of business unless the clause satisfies the requirement of "reasonableness".

In a recent case the Mercantile Court struck down an exclusion clause in a serviced-office agreement. An IT training company agreed to take office space for a period of time. The air conditioning in the offices was not up to scratch, with the result that the offices were often too hot to allow training to take place.

The IT company sued the serviced-office company for damages. It claimed to have suffered a loss of business as a result of the furnace-like conditions in the offices. In its defence, the serviced-office company relied on it standard terms of business, which attempted to exclude the company from "any liability for loss of business, loss of profits, loss of anticipated savings, loss of damage to data, third party claims or any consequential loss".

Was this an effective disclaimer?

No - it failed to satisfy the requirement of "reasonableness" under UCTA, and was therefore unenforceable.

The disclaimer was OK insofar as it restricted liability for the IT company's loss of profit, and consequential losses. The nub of the problem with the clause - which made it unreasonable - was that it effectively left the IT company with no financial remedy even though the serviced-office company had failed to provide very basic services such as air conditioning.

Implications

Businesses may produce their own standard terms of business, which will be subject to scrutiny under UCTA. Or, if they habitually use standard terms produced by industry bodies (e.g. the JCT terms, in building projects), those standard terms will also constitute "standard terms of business" for the purposes of UCTA. The "reasonableness" of an exclusion clause in standard terms of business is to be determined from all the facts of the case. So the fact that the disclaimer clause was unenforceable in the...