Can widely-drafted exclusion clauses be enforceable?
Exclusion clauses appear in many different commercial contracts (including construction contracts). They can exclude a party’s liability for certain failings entirely, which means that they can exclude millions of pounds of liability. So if you are faced with an exclusion clause, you may find that your claim is entirely extinguished, even if the party relying on it is at fault.
Because of their harsh effect, there are legal rules that exclusion clauses must comply with to be enforceable. In particular, they must be:
- not onerous or unusual;
- not exclude liability for person injury or death; and
- not exclude liability for fraud.
Generally speaking, the more widely an exclusion clause is drafted, the less likely it is to be enforceable, as it is more likely to be deemed unreasonable, onerous or unusual. That is not to say, however, that all widely-drafted exclusion clauses will be unenforceable. Take, for example, an exclusion clause that was the subject of a recent Technology and Construction Court decision. The exclusion clause ran as follows:
“We exclude all liability, loss, damage 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 systems or components provided by HFS for whatever reason”.
This clause appeared in a contract between Goodlife and Hall Fire Protection Limited (Hall Fire), under which Hall Fire supplied and installed a fire suppression system.
There was a fire at Goodlife’s factory, but the fire suppression system failed. Goodlife sued Hall Fire for the losses it had sustained, which ran to about £6,000,000.
Naturally enough, Hall Fire relied on the exclusion clause. Goodlife, however, argued that it was unreasonable and unusual and therefore unenforceable. On top of this, the clause also purported to exclude liability for death and personal injury and fraud.
The Technology and Construction Court found that the clause was enforceable, because:
- the parties were both of equal bargaining power (both were SME’s of about the same size);
- the exclusion clause was broadly similar to other clauses to be found in other terms and conditions common in the industry;
- although the clause was so widely drafted that it could exclude liability for personal injury, death or fraud, the offending part of the clause could be severed from the rest, and so did not affect the validity of the rest of the clause;
- Goodlife’s attention had been sufficiently drawn to the clause, because at the head of the terms and conditions it stated that the terms and conditions “do not provide for the provision of any form of damages whatsoever”;
- a subsequent clause offered insurance (at a cost) to cover the excluded loss and damage.
Hall Fire therefore escaped liability for the loss and damage suffered by Goodlife. Whilst this decision shows that widely drafted exclusion clauses can be enforceable, it must be treated with caution. Of particular importance in this case was the fact that both parties were of almost exactly the same bargaining position. The outcome would not have been the same if Hall Fire had been substantially larger than Goodlife.
There is another important lesson contained in this decision. Hall Fire had actually sent its terms and conditions to Goodlife (as opposed to just referring to them in its fee quote). If they had not sent them, then the terms and conditions (including the exclusion clause) would not have been incorporated into the contract. The crucial factor here was that there had been no previous dealings between the parties.
This post was written by William Cursham. For further information, please contact:
William Cursham, senior associate, Construction
T: 0121 234 0066
 Goodlife Food Limited v Hall Fire Protection Limited  EWHC 767(TCC)
 Excluding liability for person injury or death is prohibited by Section 2(1) of Unfair Contract Terms Act 1977, and it is established case law that it is not possible to exclude liability for fraud.