When drafting a business-to-business contract, both parties will want to ensure that liability is limited which can be done through exclusion clauses. To ensure exclusion clauses are fair, they must satisfy the reasonableness test according to the Unfair Contract Terms Act 1977 ("UCTA").
What clauses are automatically void?
According to UCTA, parties cannot exclude liability for the following:
Liability for death or personal injury resulting from negligence; and
Liability for breach of the implied term that the seller has good title to the goods.
If these clauses are included in a contract, they are automatically void.
What clauses are subject to the reasonableness test?
Sections 13 to 15 of the Sale of Goods Act 1979 ("SGA") are implied into contracts to ensure that the goods being sold correspond with their description, are of satisfactory quality, fit for purpose, and match any samples provided. Where a contract aims to exclude these implied terms, they are subject to the reasonableness test. In addition, where parties are contracting on a standard set of terms and conditions and aim to exclude or restrict liability for breach of contract, they are subject to the reasonableness test.
What is the reasonableness test?
The reasonableness test considers whether the clauses are fair and reasonable when considering the circumstances, which were or ought reasonably to have been in the thoughts of the parties when the contract was formed. When contemplating this, the courts take into account the following factors:
- The bargaining power of both parties;
- Whether the buyer was offered an inducement to accept the clause;
- Whether the goods were manufactured to special order; and
- Whether there were any other options available.
The court will consider the factors together to decide whether the test is reasonable. Should an exclusion clause be deemed unreasonable, it will be void and open a party up to financial liability.
The information contained in this article is for information purposes only and is not intended to constitute legal advice. If you require further information our commercial team would be more than happy to assist you. Please contact us at firstname.lastname@example.org or call us on 029 2009 5500 to speak to one of our team.