Scottish UCTA Decision Illustrates Courts' Reluctance To Interfere In A Commercial Bargain

• Published date: 03 March 2023
• Subject Matter: Corporate/Commercial Law, Insurance, Litigation, Mediation & Arbitration, Corporate and Company Law, Contracts and Commercial Law, Insurance Laws and Products, Trials & Appeals & Compensation
• Law Firm: Norton Rose Fulbright
• Author: Ms Amy Armitage

In the recent case of Benkert UK Ltd v Paint Dispensing Ltd [2022] CSIH 55, the Scottish Appeal Court dismissed an appeal which challenged the reasonableness of a limitation of liability clause under the Unfair Contract Terms Act 1977 (UCTA). The decision is consistent with the approach of the English courts who have also shown they are reluctant to interfere in cases where contractual terms have been negotiated and agreed between commercial parties of equal bargaining power.

UCTA

UCTA imposes a statutory limit on the extent to which contractual terms can exclude or limit liability for breach of contract, negligence and other breaches of duty. The reasonableness of the contractual term is fundamental to the operation of UCTA. This is always a question of fact in each case. However there are some guiding principles (derived from Schedule 2 of UCTA) which the courts consider when assessing the reasonableness of the term which include: (i) consideration of the parties' respective bargaining power; (ii) whether there was any inducement to accept the particular term; (iii) whether the party was or ought to have been aware of the term and (iv) the extent to which the respective parties were able to cover the risk(s) with insurance.

Background facts

This case arose out of a maintenance agreement between Paint Dispensing Ltd (PDL) and Benkert UK Ltd (Benkert), under which PDL was engaged by Benkert to service two of its ink dispensing machines at one of its printing factories (the Contract).

On 10 November 2009, a fire broke out causing substantial damage to one of the factories. The fire was caused by a spark which ignited flammable solvent vapour that had escaped after a clip had suddenly come off one of the hoses containing the vapour. Benkert argued that, in breach of the Contract, PDL had failed to advise it that the use of the clips to attach the hoses was liable to lead to a fire and that PDL ought to have recommended their replacement. Benkert claimed that, had PDL done so, it would have implemented that advice and the fire would not have occurred. The agreed losses amounted to '29,680,235 and Benkert's insurers brought a subrogated claim against PDL for damages for the same amount arising from PDL's breach of the Contract.

However, the Contract (based on PDL's standard terms) contained the following limitation of liability clause:

"5.3 THE CUSTOMER'S [Benkert] ATTENTION IS SPECIFICALLY DRAWN TO THE PROVISIONS SET OUT BELOW:

5.3.1 [PDL's] total liability...