I’ve written previously about limiting liability and the nature of contractual damages (you can read those posts here and here), but no discussion of liability would be complete without reference to the Unfair Contract Terms Act 1977 (or ‘UCTA’ as it’s usually called).

Section 2 of UCTA says that a party can’t rely on a contract term which excludes liability for death or personal injury resulting from negligence. Liability for other losses caused by negligence (s. 2) and liability for defective or poor quality goods (s. 7) may only be excluded or limited where this is reasonable.

UCTA doesn’t define ‘reasonable’ but Schedule 2 sets out factors to be taken into account when assessing the reasonableness of any exclusion of liability for breach of statutory implied terms (ss. 6 and 7), such as for example the requirement for goods to be of satisfactory quality. These are:

1. •the strength of the bargaining position of the parties;
   

2. •whether the customer received an inducement to agree to the term, or could have entered into a similar contract with someone else without the term;
   

3. •whether the customer knew, or ought reasonably to have known, about the term;
   

4. •where the term excludes or restricts liability if a condition is not complied with, whether it was reasonable to expect compliance with that condition; and
   

5. •whether the contract goods were provided to the special order of the customer.
   

When assessing what’s reasonable the Court will also take into account the resources available to a party to meet a liability, and the availability of insurance (but not the level of cover actually purchased).

Many of the restrictions in UCTA apply only where the parties are dealing on standard terms. There has been considerable jurisprudence on what constitutes ‘written standard terms of business’ and the leading cases are a must-read:

1. •Salvage Association v CAP Financial Services Ltd (1995)
   

2. •St Albans City and District Council v International Computers Ltd (1996)
   

3. •South West Water v ICL (1999)
   

4. •Pegler v Wang (2000)
   

5. •Horace Holman Group Ltd v Sherwood International  Group Ltd (2000)
   

6. •Watford Electronics v Sanderson CFL Ltd (2001)
   

7. •Regus (UK) Ltd Epcot Solutions Ltd (2008)
   

In reality it’s never advisable for parties to high value or long-term relationships to contract on terms without negotiating them. Even for suppliers, where the temptation to use standard terms may be strong, negotiating the contract is usually the better approach because the rules in UCTA mean that negotiated exclusions and limitations are far more likely to be effective. Since Watford Electronics in particular the Court has been loath to interfere in negotiated agreements between substantial companies of equal bargaining power.