Enforceability Of Exclusion Clauses - Court Of Appeal Decision
Summary
Court of Appeal provides clarification on
reasonableness of exclusion clause in standard terms of
business
Excluding liability for loss of profits did not leave
the customer without a remedy
Useful guidance for commercial contract drafters when
drafting exclusion and limitation clauses
It is often difficult for drafters to know when an exclusion
clause goes too far and might be struck out for being unreasonable
under the Unfair Contract Terms Act 1977 (UCTA). A common argument
used by the non-breaching party is that enforcing an exclusion
clause would leave it with no clear remedy. In Regus (UK)
Limited v Epcot Solutions Limited [2008] EWCA Civ 361 the
Court of Appeal overturned the High Court's finding that the
exclusion clause in question was unreasonable and unenforceable
under UCTA. This decision will come as a relief to those who
exclude or limit liability for financial loss and provides some
useful guidance on how the courts might approach the enforceability
of exclusion clauses.
Background
The defendant (Epcot) entered into a contract with the claimant
(Regus) for the provision of serviced office accommodation. A
dispute arose regarding problems with the air conditioning in
Epcot's suite and Epcot stopped paying the service charges.
Regus sued for the unpaid charges and Epcot counter-claimed damages
for loss of profits and opportunity to develop its business. The
High Court found that Regus was in breach of contract in providing
defective air conditioning and that Epcot was entitled to recover
damages subject to the provisions in Regus's standard terms and
conditions which excluded certain liabilities.
The exclusion clause in question purported to exclude liability
for various items of consequential loss including loss of business
and loss of profits. It also stated "We strongly advise
you to insure against all such potential loss, damage, expense or
liability." The High Court held that the clause was
unreasonable and was of no effect because it deprived Epcot of any
remedy at all for Regus's failure to provide a basic service
such as air conditioning.
The judge concluded that it would be "unfair for no
remedy at all to be available to customers of Regus...for serious
failures in service over what may be a contract for a significant
period". The judge also held that as it was not open to
the court to sever a clause which failed to meet the requirements
of UCTA, the whole of the exclusion clause had no effect.
Appeal
The Court...
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