High Court judge Mr Justice Ramsey has declared an exclusion of
liability clause to be unreasonable because one of its three
sub-clauses was deemed to be unreasonable. It was previously
thought likely that the sub-clauses deemed reasonable would
survive.
Children's book publisher Lobster Group sued Heidelberg Graphic
over the supply of a £1.2 million printing press. Lobster claimed
that the speed and quality of the 'Heidelberg Speedmaster' had been
misrepresented.
Heidelberg sought to rely on a clause in its contract that
limited liability:
"[In no circumstances shall Heidelberg be
liable] (i) for any increased costs or expenses (ii) for any loss
of profit, business contracts, revenues or anticipated savings; or
(iii) for any special, direct or consequential damage of any nature
whatsoever said to have occurred consequent upon the supply or the
circumstances of the supply of the goods or services..."
Limitation and exclusion clauses are controlled by the Unfair
Contract Terms Act of 1977. It provides that in certain
circumstances terms deemed unreasonable can be struck out as
void.
Mr Justice Ramsey said that the attempt to exclude liability for
increased costs and expenses was unreasonable. Because the
exclusion in sub-clause (i) was deemed unreasonable, he ruled that
the entire clause should be void, including the exclusions in
sub-clauses (ii) and (iii) that would otherwise have been
reasonable.
The issue was not arising for the first time. In 1992, in the
case of Stewart Gill v Horatio Myer, the High Court took a similar
approach, striking out an entire term on the basis that one part of
it was unreasonable. But courts appeared to turn a blind eye to
that case. Consequently, the Lobster judgment contrasts with a
Court of Appeal ruling of last year, in the case of Regus v Epcot, in which the court said that it
would have struck out one sub-clause without undermining the
remaining sub-clauses, had they found that sub-clause
unreasonable.
Sarah
Cameron, a specialist in contract law at Pinsent Masons, the
law firm behind OUT-LAW.COM, said that the Lobster ruling's
resurrection of the Gill v Myer approach forces lawyers to
reconsider exclusion clauses.
"In light of the Lobster ruling, it's risky to hope that courts
will be ready to sever clauses to remove offending parts and leave
the remainder," she said. "The question boils down to what the
court considers to be the 'term' to be assessed in a contract."
"Obviously you should avoid putting unreasonable exclusions into
contracts in the first place," said Cameron. "If you want to
include a term that you think is risky, though, you should separate
that term."
"The most cautious, but tortuous, approach would be to provide
each exclusion or limitation as a separate clause – such as clause
3, clause 4 and clause 5," according to Cameron.
"An alternative, though slightly higher risk approach, would be
to list each exclusion or limitation as a separate sub-clause –
such as 3.1, 3.2, 3.3 – taking care to ensure that each clause
stands alone," she said. "You can do that by avoiding any common
introductory wording – e.g. 'X excludes all liability in respect of
the following…' – or common final wording, as there was in the
Lobster case."
"Adding wording to the effect that the parties agree that each
of the sub-clauses are separate terms and are intended to be
severable may also help," Cameron said.
"The ruling is unhelpful and we hope that it won't be followed,"
said Cameron. "In the meantime, though, anyone who drafts contracts
should be aware of it. Exclusion and limitation clauses that test
the boundary of reasonableness should now be separated as far as
possible."
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