Upholding ‘Apocalyptic Terms' In Exclusion Clauses – Where Are We Now?

A valid and effective exclusion clause will operate to limit or exclude damages that may be claimed if a breach of contract occurs. In all types of business to business contracts, carefully drafted clauses that seek to limit or exclude liability can serve as an effective tool to manage contractual exposure, provided they satisfy the 'fair and reasonable' threshold test under the Unfair Commercial Practices Act 1977 ("UCTA"). The good news is that the boundaries of what can/ cannot be excluded under contract are now clear on settled legal principles. However, the correct application of these principles to specific situations can still be a delicate balancing exercise. Whilst the UK Courts are generally reluctant to trespass into commercial negotiations between contractual parties of equal bargaining power, the correct reach of certain exclusion clauses within the borderlines of these legal boundaries has often led to costly litigation. Two recent decisions from the UK Court of Appeal provide an indication of the relevant factors which help shape the parameters of such clauses. Whilst these decisions were not dealing with contracts in the Technology sector as such, they are of equal significance and applicability in that area.

Goodlife Foods Ltd v Hall Fire Protection Ltd ("GoodLife")

In GoodLife, the Court of Appeal considered the applicability of an exclusion clause in a commercial contract governing the supply and installation of a fire suppression system into factory premises. The Respondent's (Hall Fire) product allegedly failed to contain a fire which caused substantial damage and loss to the Appellant (GoodLife Foods Ltd). The Appellant alleged that the Respondent's product was defective in failing to suppress the fire, which led to property damage and business interruption estimated at GBP £6.6 million. However, the standard conditions of the Respondent's supply contract contained the following exclusion wording:

"We exclude all liability, loss, damages or expense consequential or otherwise caused to your property, goods, persons or the like, directly or indirectly resulting from our negligence or delay or failure or malfunction of the systems or components provided by [Hall Fire] for whatever reason. In the case of faulty components, we include only for the replacement, free of charge, of those defected parts. As an alternative to our basic tender, we can provide insurance to cover the above risks..."

The Appellant raised a common...