The effectiveness of contractual exclusion clauses

Peter Brewer, in our commercial litigation team has a particular interest in complex contractual disputes, shareholder disputes, banking disputes and professional negligence claims.

He reviews an interesting case, Last Bus Ltd -v- Dawsongroup Bus and Coach Ltd [2022] where the court recently had to consider an exclusion clause that sought to exclude the implied contractual terms that goods would be of a satisfactory quality.

This case demonstrates that a well drafted contractual exclusion clause can be a powerful thing, and that parties who have an equal level of bargaining power can rely on them to exclude the express and implied terms as to satisfactory quality and fitness. As this case demonstrates, the party relying on the term can avoid what might otherwise have been a significant contractual liability.

Background of this case

The Claimant ordered a number of coaches on hire purchase terms. Once they were delivered, the Claimant alleged that a large number of them were defective. The Claimant sued the hire purchase company, together with the importer, the distributor, and the after sales service provider for the coaches. The thrust of the Claimant’s case was that the buses were not of a satisfactory quality in breach of the statutory implied term (by s.10(2) of the Supply of Goods (Implied Terms) Act 1973). The Claimant sought damages in excess of €10million.

The hire purchase company had a contractual clause which stated that the express and/or implied terms with regard to satisfactory quality and fitness would be excluded. In reliance on the exclusion clause, the hire purchase company applied for summary judgment. The hire purchase company’s position was that the exclusion satisfied the requirement of reasonableness under the Unfair Contract Terms Act 1977.

The Courts Judgment

The application for summary judgment was successful. The court held that the exclusion clause relied on in this case was reasonable on the basis that:-

1. The parties had equality of bargaining power. There was no economic imbalance between the Claimant and the hire purchase company, and the Claimant was free to seek the hire purchase of the vehicles by using an alternative provider. There was nothing that forced it to do business with the hire purchase company.
2. Exclusion clauses of the nature relied upon by the hire purchase company were common in the hire purchase market, and the court determined that it was likely that other providers would rely on the same if not a similar clause.
3. The Claimant was a substantial company, with the ability to purchase some if not all of the coaches outright if it wanted to do so. It had chosen to hire purchase them for economic reasons. If the coaches had been purchased directly from the manufacturer, then the Claimant would have been able to negotiate the contractual assurances as to the satisfactory quality directly with that manufacturer.
4. The Claimant and the hire purchase company had done business on several occasions in the past. The court therefore determined that the Claimant ought to have been well aware of the contractual exclusion clause.

If you are seeking to rely on such a term or want to have advice as to how such a term could be incorporated into your terms and conditions, please contact us and we will be happy to help.