The Court of Appeal has handed down its decision in Goodlife Foods Limited v Hall Fire Protection Limited  EWCA Civ 1371, with Coulson LJ giving the lead judgment. The main issue was whether a far-reaching exclusion clause in the standard terms of the defendant contractor was reasonable within the meaning of the Unfair Contract Terms Act 1977 (“UCTA”). The defendant supplied specialist fire suppression systems and the system supplied to the claimant allegedly included a defective component that caused a fire. The component was supplied to the defendant by a third party manufacturer. Clause 11 of the defendant’s standard terms excluded liability for damage resulting from defective components, concluding “As an alternative to our basic tender, we can provide insurance to cover the above risks. Please ask for the extra cost of the provision of this cover if required.”
The claimant alleged that clause 11 was not reasonable under UCTA because the defendant was seeking to avoid its core obligation of providing a proper fire suppression system.
Coulson LJ disagreed and held that the exclusion clause was reasonable. He firstly stressed the importance of terms freely agreed by parties of broadly equal size and status . Here it was an important factor that the parties were broadly equal in terms of their bargaining positions [73(i)].
Secondly, he referred to “the ease or otherwise with which the parties could obtain insurance in respect of the losses caused” as a relevant factor in considering reasonableness . The insurance point was “at the heart of the reasonableness issue in this case … There are two reasons for that: the identity of the party best-placed to effect the necessary insurance, and the express alternative identified by [the defendant] in … clause 11” . It was not unreasonable for one party to exclude liability for the vast majority of the damage and loss that might arise from its own defective performance, whilst making clear that, if the customer does not want such liability to be excluded, then, on the taking out of and payment for the necessary insurance, liability would be accepted .
Other relevant factors were that the exclusion was not in respect of the operation of a condition, the claimant could have gone elsewhere and the system was not manufactured to the claimant’s order . Finally, the exclusion clause was in accordance with industry norms .
The Court also commented on the general recent trend in UCTA cases towards upholding terms freely agreed, particularly if the other party could have contracted elsewhere and has, or was warned to obtain, effective insurance cover .