Standard terms, time limits and UCTA
COMMERCIAL MANAGEMENT v MITCHELL DESIGN [2016]
The Technology and Construction Court (“TCC”) decided that a term proposed in a sub-contractor's standard terms and conditions, which introduced a time limit for claims, had not been included in the final sub-contract. It also concluded that if it had been incorporated, it would not have satisfied the reasonableness test under UCTA and so would have been unenforceable.
Facts:
- A contractor, Mitchell Design (“M”), invited a tender based on the JCT Standard Form of Contract for some sub-contract work work in relation to a warehouse. The sub-contractor (“R”) replied referring to its own standard terms.
- One of these standard terms said, “All claims under or in connection with this Contract must … be notified to us in writing within 28 days of the appearance of any alleged defect … and shall in any event be deemed to be waived and absolutely barred unless so notified within one calendar year of the date of completion of the works” (“Clause 12(d)”).
- M confirmed its intention to contract but a formal order was only sent after completion of the works which referred to M’s own standard terms as well as the JCT contract.
- R signed the order but with several hand-written amendments. M then countersigned the order.
- Several years after completion, there were allegations of some defects in relation to the work that had been carried out. Commercial Management (“C”), who had acquired an interest in the warehouse, began a claim against both M and R.
- R relied on Clause 12(d) as part of its defence, arguing that it was incorporated into the sub-contract. It maintained that this prevented C bringing any such claim unless R was notified within 28 days of the appearance of the defect or, at the latest, within one year of the completion of the works, which it had not been.
Decision:
- The TCC referred to various sections of UCTA:
- Section 2 – a party cannot restrict liability for negligence “except in so far as the term or notice satisfies the requirement of reasonableness”;
- Section 3(1) – UCTA covers a contract between parties “where one of them deals on the other's written standard terms of business”;
- Section 3(2) – “a party cannot rely on a contract term to exclude or restrict liability for breach except in so far as ... the contract term satisfies the requirement of reasonableness”.
- The TCC concluded:
- R’s terms did not form part of the final sub-contract. However, if they had, the sub-contract would have been on R's ‘written standard terms of business’ for the purposes of Section 3(1) of UCTA even if those standard terms were not incorporated in their entirety.
- The sub-contract would therefore have been subject to UCTA and Clause 12(d) did not satisfy the reasonableness test. The TCC said that the parties would not reasonably have expected that compliance with both the 28 day time limit and the requirement to make a claim within a year would be achievable, let alone practicable, except in rare cases.
- Therefore, in circumstances where there was no notification of any claim within one calendar year of completion of the works, Clause 12(d) did not provide a defence for R, for the purposes of any claim brought by C or M.
Points to note:
- UCTA provides no express guidance on what the term ‘written standard terms of business’ referred to in Section 3 means but previous cases have shown that it is not necessary for all of a party’s standard terms to be incorporated into a contract to fall within the scope of UCTA. Whether an agreement is freely negotiated or on a party's standard terms is a question of fact to be decided in each individual case but if the limitation and exclusion clauses essentially remain as per the supplier’s standard terms, then they are likely to be subject to the UCTA reasonableness test even if other elements have been varied.
- Any term which imposes a limitation period for bringing claims shorter than the limit applicable under the Limitation Act 1980 (which is six years from the date of the breach of contract) is treated under UCTA as a form of limitation of liability and is therefore subject to the reasonableness test, as was considered here. In the context of whether a limitation of this type is reasonable, account should be taken as to whether it will be possible or practical for the relevant party to actually comply with any condition or restriction imposed by the clause in question.