‘Extreme’ exclusion of liability upheld
Difference v Unitel (Sheriff Court) [2019]
Limitation and exclusion of liability clauses are highly contentious and in many commercial contracts, fiercely negotiated They need to be very carefully drafted to ensure that they are effective at excluding or limiting liability as intended and to ensure that they will stand up to judicial scrutiny. There are several examples over recent years where clauses have sought to go too far and have been declared unreasonable and therefore unenforceable. At first glance that seemed a distinct possibility in this case.
Facts:
Difference supplied automated telephone dialling software to Unitel. The contract between the parties consisted of a purchase order issued by Difference to Unitel who electronically signed and returned the document to Difference. Difference’s standard terms of supply were not physically supplied to Unitel. However, they were available online and a hyperlink was included in the purchase order immediately above the signatures. Crucially the court found that the hyperlink was working properly.
Difference’s standard terms contained a clause excluding liability for losses, however caused, under the contract or in relation to the services provided. The relevant clause stated
““Save only as is otherwise specified in this clause, the entire liability of Difference in [connection] with the Services or this Contract, whether in contract, tort or otherwise or for consequential or indirect loss, is excluded. Non exhaustive illustrations of consequential or indirect loss would include loss of profit, revenue, contracts or business, damage to property of the Customer or anyone else and anticipated savings or profits”.
Unitel alleged a number of problems with the software and stopped making payments. Difference suspended its services and issued proceedings for the arrears of payment and for loss of profit.
Unitel counterclaimed for repayment of sums it had paid. It also claimed for certain other losses including loss of profit.
The court had to decide whether Difference’s standard terms were incorporated into the contract and, if so, whether the exclusion clause was enforceable.
Decision:
Whether standard terms are incorporated is a question of fact in the circumstances. Even if the contracting party does not read the standard terms, they could still be bound by them. The court decided that the standard terms were incorporated. “The terms were a click away from perusal” and it was impossible for Unitel not to have realised that they were intended to form part of the contract.
Where a particularly onerous or unusual provision is included in standard terms, in certain circumstances (see the recent Bates case where it was decided this rule does not apply where the contract in question has been signed) it must be specifically drawn to the other party’s attention otherwise it will be ineffective. The court, somewhat surprisingly, said that the fact that the relevant clause excluded rather than limited Difference’s liability did not elevate it to a clause which needed to be specifically drawn to Unitel’s attention.
The court also commented that it was not unreasonable for Difference to seek to exclude its liability, given that its exposure could be disproportionately high when compared to the contract price. The contract was also a written agreement between two commercial parties of equal bargaining power. Unitel had the opportunity to read and negotiate the clause.
Points to Note:
- The decision on the incorporation of contract terms via a hyperlink is entirely unsurprising. Any other decision would have caused many businesses very significant problems.
- It is important to note that the value of the contract was extremely limited, only £2,025 per month plus call charges.
- This is an extreme decision in the sense that the clause in question was pretty all-encompassing, effectively preventing Unitel from claiming any remedy whatsoever. Such an approach is not to be recommended. Although the judge in this case upheld the reasonableness of the clause, this is not a route we would suggest other suppliers follow. Allowing for a limited liability (such as some ability to reclaim payments made) would significantly increase the likelihood of the clause being upheld.