Be up front or be found unreasonable: potential pitfalls in contract drafting

In Phoenix Interior Design Ltd -v- Henley Homes plc and another [2021] EWHC 1573 (QB), the High Court considered, among other things, whether an exclusion clause, buried in a supplier’s terms and conditions, was reasonable for the purposes of the Unfair Contract Terms Act 1977. 

Background

The case concerned interior design services supplied by the claimant for the refurbishment and fitting out of the five-star Dunalastair Hotel in the Scottish Highlands. The claimant sought payment of unpaid invoices, which the defendants refused to pay and counterclaimed, arguing that the goods supplied by the claimant  were so defective that the defendants were entitled to compensation in a sum which exceeded the amount unpaid. 

The claimant sought to rely on its exclusion clause, at clause 8.3 of its standard terms and conditions, to defend the counterclaim. There were a number of components to the case, but this article will focus specifically on the incorporation and reasonableness of the exclusion clause used by the claimant.

Decision

The claimant’s standard terms and conditions were held to have been incorporated into the contract between the parties, however the exclusion clause relied upon by the claimant was deemed unreasonable. The clause-in-question provided that: ‘the Seller shall be under no liability under the above warranty (or any other warranty, condition or guarantee) if the total price of the Goods has not been paid by the due date for payment.’ 

It was decided by Freeman J that this exclusion clause was inoperative for several reasons: 

• the uncertainties surrounding the due date for payment of the invoices (being due ‘on completion’, which was not sufficiently certain);
• the harsh consequences for the defendants, effectively barring all rights of redress for the quality of goods supplied, in the event of a slight delay or deduction;
• the clause was also ‘tucked away in the undergrowth’ of the supplier’s terms and conditions; and
• the clause was considered ‘uncommon’ insofar as it was significantly different to a more common and acceptable anti-set off clause.

Comment

This case reinforces the principle that contractual terms in contracts (and particularly consumer contracts) must be reasonable: parties seeking to rely upon them must ensure that, if any harsh or unusual exclusions and limitations are included that they are visible and well-signposted – small-print, tucked away in the undergrowth of the contract and clearly puts the terms at risk of being found unreasonable. A party seeking to rely upon such a clause is therefore likely to have a stronger case on reasonableness if the exclusion or limitation clauses are clearly positioned upfront and are visible.

Accessibility and the way in which a party’s terms and conditions are presented are equally important. This can be achieved most easily by ensuring that the terms are ‘overleaf’ or attached to any pre-contract proposal documents. A simple action to attach the terms and conditions in this respect may well reduce the risk of any allegations being made that the terms were not properly incorporated. 

For further information on beach of contract issues, please contact Jack Lewis.