Exclusion of all liability for negligence
GOODLIFE FOODS v HALL FIRE PROTECTION [2017]
One of the first things that lawyers are taught is that under English law it is not possible in a contract to exclude liability for death or personal injury caused by negligence. For that reason the vast majority of exclusion clauses make clear that they do not impact such liability. The question is, what happens when the clause does not make that clear?
Facts:
- Goodlife Foods (“G”) contracted with Hall Fire Protection (“H”) in 2002 to design and install a fire detection and suppression system at G's factory. A fire occurred in 2012 at the factory causing property damage and business interruption losses in excess of £6million.
- G claimed that H was liable for the fire as it was caused by a failure or malfunction of the fire suppression system and issued a claim for breach of contract and negligence in 2016.
- Under the Limitation Act 1980, a claim for breach of contract claim has to be brought within six years of date of the breach so G was prevented from bringing a claim in contract. However, a claim in negligence was not statute barred because the six year limitation period did not begin to run until the date of the fire.
- H argued that clause 11 of its standard terms and conditions excluded any claim in negligence. Clause 11 provided:
“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 failure or malfunction of the systems provided by [H] for whatever reason.
In the case of faulty components, we include only for the replacement, free of charge, of those defective parts.
As an alternative, we can provide insurance to cover the above risks. Please ask for the extra cost of the provision of this cover if required”.
- The Court had to decide whether clause 11 was incorporated into the contract and whether it was reasonable. In doing so it had to consider whether clause 11:
- was an unusual and onerous clause;
- excluded liability for death and personal injury contrary to the Unfair Contract Terms Act 1977 (“UCTA”);
- was unreasonable because it excluded liability for death and injury;
- was so widely drafted that it was unreasonable?
Decision:
Was clause 11 unusual and onerous?
- The Court concluded that clause 11 was:
- not particularly unusual. Having reviewed evidence of the nature and ambit of exclusion and limitation clauses used by other companies operating within the fire protection industry, it considered that all companies relied upon some form of exclusion or limitation clause;
- not especially onerous either. In the context of a catastrophic fire, there was little substantial difference between the total exclusion by H and the more typical limitation of liability offered by others. Limiting liability to the contract price was unlikely to give the customer much substantial help.
- Even if it was wrong about whether the clause was unusual or onerous, the Court commented that it was satisfied that the provision had been sufficiently drawn to G's attention. Whilst there was no reference to clause 11 or its effect in its quotation, the opening words of the relevant section containing clause 11 did state that the terms and conditions: “do not provide for the imposition of any form of damages whatsoever”. The Court concluded that this statement was sufficient to fairly and reasonably bring the provision to G's attention. It was also influenced by the fact that G had ample opportunity to read and consider the contract terms before finalising the contract and there was no suggestion that G did not have commercial acumen and access to appropriate legal and/or insurance advice.
Was the exclusion of liability for death and personal injury contrary to UCTA?
- Yes - the Court said it was contrary to Section 2(1) of UCTA which provides that a party cannot exclude or restrict its liability for death or personal injury resulting from negligence. G submitted that clause 11 was therefore unreasonable because it was so widely drafted.
Was clause 11 unreasonable because it excluded liability for death and injury?
- The key issue here was whether the unlawful exclusion of liability for death and personal injury caused by negligence rendered the whole clause unreasonable and of no effect. In this respect the Court felt bound by a decision of the Court of Appeal in Trolex Products v Merrol Fire Protection [1991]. In Trolex it was found that, “If part of a term is ineffective by reason of section 2(1), the remainder can nevertheless be upheld as reasonable”.
- As an aside in this case, the Court commented that if it had not had to consider the judgment in Trolex, it would have decided that the whole of the clause would have been unreasonable and ineffective on this basis.
Was clause 11 so widely drafted that it was unreasonable as a whole?
- The Court was clearly influenced by the fact that the risk of a fire was one that G could and should insure against. Overall, it found that clause 11 represented, “a perfectly sensible allocation of the risk of loss and damage as between two commercial concerns of broadly equal size and bargaining power, contained in a clause which [H] took reasonable steps to draw to [G's] attention”.
Points to note:
- H was probably quite lucky here given that it had included a clause which represents an extreme end of the exclusion of liability spectrum. It would almost certainly have been on safer ground had it adopted a slightly more generous clause in line with some of its competitors. However, it had followed good practice in offering the possibility of a different allocation of liability covered by insurance at extra cost.
- This case also emphasises that when it comes to limitations and exclusion clauses, context is everything. Here, the fact that fire risk is something that property owners typically and routinely cover by insurance was very relevant.
- It has to be sensible that exclusions of liability for death and personal injury caused by negligence are treated in the same way as fraud – it is unnecessary to specifically state that liability for fraud is not excluded to avoid a finding that a restriction of liability is unreasonable. Quite apart from making contracts shorter, such an approach prevents perfectly good clauses allocating liability being struck down for technical drafting errors which do not go to the heart of the deal.
- It is interesting that the Court did not set the bar very high in terms of what was required to effectively bring the clause to the attention of the other party. This case is another example of how the Courts have, in recent years, been generally much more prepared to uphold limitations of and exclusions from liability, recognising that they have a genuine part to play in a reasonable apportionment of risk between contracting parties.