Authors: Tim Healey, Partner, Construction and Engineering, London and Michael Mendelblat, Professional Support Lawyer, Construction and Engineering, London
The Unfair Contract Terms Act 1977 (UCTA) can apply to contracts where one party's standard terms are partially incorporated – Commercial Management (Investments) Ltd v Mitchell Design & Construct Ltd  EWHC 76 (TCC). Developers may benefit from this decision if contracting with suppliers of goods or services on the suppliers' standard terms of business containing a wide-ranging exclusion of liability.
The use of standard terms of business in contracts for provision of goods or for work and materials in the construction industry is widespread. Where one party enters into a contract on another party's written standard terms of business, UCTA may apply to exclusion clauses in the contract. Where such clauses attempt to exclude or limit liability for breach of contract, they will only be enforceable if they satisfy the requirements of UCTA, that is to say they satisfy the reasonableness test in the Act.
The issue arising in this case was whether the entirety of the other party's written standard terms of business had to be incorporated into the contract for UCTA to apply, or whether it is sufficient that only some of the standard terms had been so incorporated.
In this case, parts of the main contract works were sub-contracted. When the sub-contract works were found to be defective, the sub-contractor sought to rely on a limitation clause in its standard terms. The clause required any notification of claim to be made in writing within 28 days of discovering the defect and an overall longstop date of one year after completion applied. The court found that the limitation clause in question did not form part of the contract. However, assuming that it did, the court also held that the circumstances were sufficient to trigger UCTA's application, even if the sub-contractor's written standard terms of business had not been incorporated in full.
The clause was held not to satisfy the reasonableness test under UCTA.
In the construction industry, as in this case, parties customarily contract on one party's standard terms of business. These terms were available in this case for negotiation "at a price" but the executed contract largely mirrored the standard terms. As this case highlighted, the fact that a contract has been partly negotiated or has departed in some respects from the standard terms will not necessarily avoid UCTA.
To avoid being found unenforceable, any limitations or exclusions for breach of contract in one party's written standard terms of business must satisfy the tests set out by UCTA, so that they must be reasonable. This case indicates that a clause which requires notification of a claim and imposes a "cut-off" within a very short period of time may be found unreasonable in a construction context, where defects in works may be hidden from view and only noticeable several years after completion.
For more information please contact:
Michael MendelblatProfessional Support Lawyer, Construction and Engineering, London
+44 20 7466 2535