High Court finds entire agreement clause did not exclude liability for misrepresentation

The High Court has held that an entire agreement clause in a commercial contract did not exclude liability for misrepresentation under section 2(1) of the Misrepresentation Act 1967: Al-Hawasi v Nottingham Forest Football Club [2018] EWHC 2884 (Ch). The court overturned the master’s decision to the contrary, considered here.

The decision re-emphasises the generally accepted position that clear words are needed to exclude liability for misrepresentation. In general, the effect of an entire agreement statement (of itself) will be to avoid representations becoming contractual terms, rather than excluding liability for misrepresentation. Where a party wishes to avoid liability for misrepresentation, more will be needed, such as non-reliance wording or an express exclusion of liability. Continue reading

Court of Appeal finds clause limiting liability for negligence was reasonable

The Court of Appeal has recently upheld a High Court decision that a term limiting a defendant’s liability for negligence in the supply of a fire suppression system had been properly incorporated into the contract and that it met the test of reasonableness under the Unfair Contract Terms Act 1977 (“UCTA”): Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371.

The clause in question was contained in Terms and Conditions that were referred to in and attached to the defendant’s quotation. The clause was held to be incorporated into the contract on the basis that it was not particularly unusual or onerous and, in any event, had been fairly and reasonably brought to the attention of the claimant.

The court held that there was no basis to find that the clause was unreasonable as, amongst other factors, the parties were of equal bargaining power, the claimant had its own insurance, and the claimant had been given an option of contracting without the clause but at a higher price.

The judgment emphasises the increasingly hands off approach taken by the courts to contracts agreed between commercial entities of equal bargaining power. As the Court of Appeal commented, “the trend in the UCTA cases decided in recent years has been towards upholding terms freely agreed, particularly if the other party could have contracted elsewhere and has, or was warned to obtain, effective insurance cover”.

Whilst the decision does not establish new principles, it is a useful review of the law on exclusion and limitation clauses and indicates the current trend of judicial analysis in such cases. For more information on such clauses see our contract disputes practical guide on liquidated damages, limitation and exclusion clauses. Continue reading

Misrepresentation claim struck out on basis that entire agreement statement excluded liability

The High Court has held that an entire agreement clause in a commercial contract had the effect of excluding liability for misrepresentation under section 2(1) of the Misrepresentation Act 1967: NF Football Investments Limited v NFFC Group Holdings Limited [2018] EWHC 1346 (Ch).

This contrasts with the orthodox view that the effect of an entire agreement statement is merely to avoid pre-contractual representations becoming terms of the contract, and that such a statement will not, in itself, exclude liability for misrepresentation (as noted for example in our contract disputes practical guide on pre-contractual statements).

The decision notes that clauses which effectively exclude liability for misrepresentation will ordinarily be expressed using well-established formulations, such as non-reliance wording (see our post earlier on a recent Court of Appeal decision which considered a non-reliance clause) or an express statement that liability is excluded. However, it emphasises that an entire agreement clause (like any other) must be construed in its contractual context. To put it another way, there are no magic words that must be used.

As a practical matter, to avoid any dispute, parties seeking to exclude liability for misrepresentation would be well advised to stick to the well-established formulations – not least as this is a decision of a Master, and there is no guarantee that the same approach will be taken in other cases. It shows, however, that a departure from those formulations need not always be fatal. Continue reading

Court of Appeal finds non-reliance clause sought to exclude liability for misrepresentation and was therefore subject to UCTA reasonableness test

The Court of Appeal has found that a “non-reliance” clause in a lease was a term that excluded or restricted liability for misrepresentation. The clause was therefore within the scope of s.3 of the Misrepresentation Act 1967 (“MA”) and subject to the reasonableness test under s.11(1) of the Unfair Contracts Terms Act 1977 (“UCTA”): First Tower Trustees Ltd v CDS (Superstores International) Limited [2018] EWCA Civ 1396.

Some key points from the Court of Appeal’s analysis include:

  • Where a clause simply delimits the parties’ primary obligations, it is not an exclusion clause and therefore the reasonableness test in UCTA will not apply. Such clauses define the basis on which the parties are contracting. Lewison LJ, who gave the leading judgment, suggested that this is how the label “basis clause” in some of the cases should be understood, though Leggatt LJ, who delivered a concurring judgment, suggested that the term is best avoided in the interests of clarity.
  • A non-reliance clause, in contrast, seeks to prevent liability arising in misrepresentation by stating that no representations have been made or, if made, have not been relied on, and therefore setting up a contractual estoppel. The Court of Appeal held that such a clause amounts to an attempt to exclude liability for misrepresentation. Accordingly, it is subject to s.3 MA and therefore the reasonableness test under s.11 UCTA.
  • Leggatt LJ commented (obiter) that it does not matter whether the non-reliance clause is contained in a contract entered into after the representation was made (as in this case) or before it (eg in a confidentiality agreement entered into before the main transaction). Where it is in a contract agreed before the representation, however, it might affect whether the elements of the misrepresentation claim are in fact established, eg whether a particular communication would reasonably be understood as making a representation or whether it was in fact relied on.

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Article published – If the cap fits

In a decision late last year, the Court of Appeal considered the interpretation of a provision which purported to cap the liability of a provider of IT systems for defaults occurring at different stages of the contract. In contrast to the High Court, which had held the clause imposed a single overall cap which varied depending on the point at which the first default occurred, the Court of Appeal held that there were two separate caps for defaults occurring within the two stages: Royal Devon and Exeter NHS Foundation Trust v Atos IT Services UK Ltd [2017] EWCA Civ 2196.

James Farrell and Sophie Jones have published an article in the March/April 2018 edition of the Procurement & Outsourcing Journal in which they explore the lessons to be learned, particularly as to the importance of using clear and precise drafting for provisions limiting liability under a contract. Click here to download a copy.

Court of Appeal clarifies when parties are dealing on written standard terms of business so that the UCTA reasonableness test will apply

The Court of Appeal has upheld an order for summary judgment for sums due under a facility agreement which was based on a Loan Market Association (LMA) model form. It rejected the defendants' argument that (i) the parties were dealing on the lenders' written standard terms of business and therefore (ii) a term in the facility agreement that prohibited set-off needed to satisfy the reasonableness requirement under the Unfair Contract Terms Act 1977 (UCTA): African Export-Import Bank v Shebah Exploration & Production Company Ltd [2017] EWCA Civ 845.

The court held that, in determining whether parties are contracting on standard terms of business, it is not sufficient that the terms derive from the use of a model form. The essential questions are:

  • whether the relevant party habitually uses those terms; and
  • whether there have been more than insubstantial variations to the terms.

The decision suggests that, where a party habitually uses a standard form document but its terms are then negotiated, it is unlikely to be seen as contracting on standard terms for the purpose of UCTA, at any rate where the negotiations result in "more than insubstantial variations" to that standard form. Each case will however turn on its facts.

The decision may be seen as casting doubt on the recent High Court judgment in Commercial Management (Investments) Ltd v Mitchell Design and Construct Ltd [2016] EWHC 76 (TCC) (considered here) which suggested that parties could be contracting on standard terms even if the standard terms comprised only a small proportion of the terms of the contract – although its precise impact on that decision is not clear.

Daniel Woods, an associate in our dispute resolution team, considers the decision further below.

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Court of Appeal decision casts doubt on principles requiring narrow interpretation of exclusion clauses

The Court of Appeal has found that an exclusion clause in an engineering services contract was effective to exclude any liability on the part of the defendant engineers for identifying and reporting on asbestos on a development site. This was based on the clear wording of the clause and commercial common sense. The traditional principles or canons of construction relating to exclusion clauses had no part to play: Persimmon Homes Ltd v Ove Arup & Partners Ltd [2017] EWCA Civ 373.

In interpreting exclusion clauses, the courts have traditionally applied certain principles which tend toward a narrow construction, in particular: (i) the contra proferentem rule, which provides that any ambiguity should be resolved against the party who put the clause forward and relies upon it; and (ii) the so-called Canada Steamship guidelines, which essentially provide that clear words are required to exclude liability for negligence, and that the court will not interpret a clause to cover negligence if there is some other head of damage it might realistically have been intended to cover (eg strict liability in relation to a statutory duty).

In recent years, however, the courts have tended to cast doubt on the extent to which these principles remain applicable, at least where the clause is clear and unambiguous. This latest decision continues that trend, emphasising that the words used, the relevant context, and commercial common sense should normally be sufficient in determining the meaning of a contract term. The decision suggests that the tendency to assume exclusion clauses must be construed narrowly may be seen by the courts as outdated. As the Court of Appeal commented: 

"In major construction contracts the parties commonly agree how they will allocate the risks between themselves and who will insure against what. Exemption clauses are part of the contractual apparatus for distributing risk. There is no need to approach such clauses with horror or with a mindset determined to cut them down." 

However, for those who want to ensure their clause is effective, the practical advice remains to use clear and unambiguous drafting, rather than seeking to rely on general wording. Rachel Lidgate and Maura McIntosh, a partner and a professional support consultant in our disputes team, outline the decision below. For more on exclusion clauses, see Defining your liability in advance: Liquidated damages, limitation and exclusion clauses, the sixth edition in our contract disputes practical guides series.

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Commercial Court considers interpretation of clause excluding consequential or special losses

The Commercial Court has considered the proper construction of the phrase "consequential or special losses, damages or expenses" in a ship-building contract, concluding that (in this specific contract) it meant any losses resulting from physical damage other than the cost of repair and replacement: Star Polaris LLC v HHIC-PHIL INC [2016] EWHC 2941 (Comm).

While this case does not establish new law, it is a useful illustration of the court's approach to construction of contractual terms and, in particular, that the court will construe limitations of liability in the context of the contract as a whole. It demonstrates in particular that, even if the court has previously decided on the construction of a similar (or even identical) term in a different contract, it may reach a different conclusion on its meaning in this different context.  Here it was significant that the contract in question provided a complete code for dealing with liability, so it was not just a question of determining what liability was excluded, but ascertaining what liability was undertaken.

As a practical matter, the case illustrates that parties should take great care in ensuring that any terms defining or restricting their contractual liabilities are clear and unambiguous. Using precedent wording from a different contract that the court has already ruled upon is no guarantee that a similar approach will be taken in a different context.

James Baily and Martin Hevey, a partner and associate in our dispute resolution team, consider the decision further below. For more information on contractual limitation and exclusion clauses, see Defining your liability in advance: Liquidated damages, limitation and exclusion clauses from our contract disputes practical guides series.

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Defining your liability in advance: Liquidated damages, limitation and exclusion clauses

Parties to commercial contracts commonly seek to set some parameters around what will happen in the event of a breach. They may for example agree a fixed sum that is payable on breach, or set a maximum sum for any damages, or exclude liability (or particular categories of liability) altogether.

Such clauses may not always have the effect the parties expect, either because of how they are interpreted by the courts or because they are held to be unenforceable as a result of statute or common law principles.

In this sixth of our series of contract disputes practical guides, James Baily, David Nitek and Gillian Fairfield consider the main types of clause that may be used and the extent to which they will (or will not) be effective, and provide some practical tips for commercial parties. You can click here to download the PDF guide.

Clients and contacts of the firm can also register to access the archived version of our webinar exploring these issues by contacting Jane Webber. The webinar lasts an hour and qualifies for one CPD point. Or if you would prefer a shorter version focusing on key practical tips, James has also presented this 10 minute podcast.

There are five previous editions in the series, listed below, which can be accessed from the home page for our contract disputes series (which is also linked under "our guides" in the top menu):

  • When do you have a binding contract? It may be more (or less) often than you think
  • What does your contract mean? How the courts interpret contracts
  • Pre-contractual statements: When can they come back to bite you?
  • How far can you act in your own self-interest? The role of good faith in commercial contracts
  • Endeavours obligations: How hard do you have to try?

UCTA reasonableness test may apply even where contract is only partly on standard terms

The High Court has found that the requirement of reasonableness imposed by the Unfair Contract Terms Act 1977 (UCTA) can apply in circumstances where a party's written standard terms and conditions are incorporated only in part and other terms are tailor made: Commercial Management (Investments) Limited v Mitchell Design and Construct Limited and another [2016] EWHC 76 (TCC).

The UCTA reasonableness test applies to (among other things) any attempt to exclude or restrict liability for breach of contract where one party deals "on the other's written standard terms of business". Parties may assume that the test is not engaged in the context of a contract made between two commercial parties where certain of the terms have been negotiated and others are in standard form.

However, this decision makes it clear that it is not necessary for the full suite of a party's standard written terms and conditions to be incorporated into a contract before UCTA will apply. This means that more exclusion clauses may be open to challenge on grounds of reasonableness than might generally have been assumed. Sarah Boland, a senior associate in our dispute resolution team, considers the decision further below.

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