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Widely-drafted exclusion clauses are not automatically unreasonable, rules UK High Court

Out-Law Legal Update | 28 Apr 2017 | 2:52 pm | 1 min. read

LEGAL UPDATE: The High Court has said that the mere fact that an exclusion clause is widely drafted will not automatically make it onerous or unreasonable. The reasonableness of the clause will depend on the circumstances such as the type of loss that is excluded.

Hall Fire designed and installed a fire protection system for Goodlife's factory premises in 2002. In 2012 a fire broke out at the factory and Goodlife claimed the cause was a failure or malfunction of the system. Goodlife made a negligence claim against Hall Fire. Hall Fire raised a preliminary issue that the exclusion of liability clause in their standard terms contained in their contract excluded any negligence claim.

Goodlife argued that the clause did not comply with the reasonable requirement in Unfair Contract Terms Act (UCTA). They pointed to previous sale of goods cases where widely drafted clauses were found to be incompatible with UCTA.

The court did not agree and drew a distinction in this case where the only loss which the clause excluded was the risk of an unnoticed faulty part resulting in a fire. The judge reasoned that it could be expected that commonly insured risks such as fire, "almost certainly would and certainly should be covered by insurance anyway". In contrast, in the previous sale of goods cases, "the nature and extent of any loss and damage was infinitely variable".

Goodlife also claimed the entire clause was invalid as it purported to exclude liability for death and personal injury. Under UCTA such a provision has no effect, however previous case law had been unclear whether this then rendered the whole clause unreasonable and of no effect. The court was satisfied that the relevant words alone could be taken as having no effect while the rest of the clause would remain valid, provided it was reasonable.

This case clarifies that wide-ranging exclusions for risks that are commonly insured against such as fire, flood and theft can be reasonable under UCTA. Businesses should take care adequate insurance is in place if they want to ensure cover for these excluded risks. Additionally it is important to carefully review exclusion clauses, particularly if the supplier's terms and conditions have been incorporated. Even clauses with provisions which contravene UCTA may still be held to be partially valid although it is unwise to risk litigation by seeking to exclude or limit liability where this is prohibited in law.

Sarah Cameron is a technology law expert at Pinsent Masons, the law firm behind Out-Law.com