S 11 of UCTA outlines the reasonableness test PDF

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S 11 of UCTA outlines the reasonableness test. It basically says its reasonable if its reasonable at the time the contract was made. Schedule 2 gives more guidance on reasonableness… a) more likely to be reasonable if parties are equal bargaining strength b) did the customer receive inducement to agree to the exclusion clause? if inducement more likely ec would be reasonable. Most usually lower price is inducement, the lower the price more likely that the ec will be reasonable c) whether the customer knew or should have known of the term d) whether the term excludes or restricts liability if some condition is not complied with. Is the term dependant on some condition being complied with? If yes, then its less likely to be reasonable Not tests just factors to help decide. -need to make own argument why clause is reasonable or not Reasonable Cases… Watford electronics v Sanderson -Watford wanted to use the system for their mail order business. Didn’t meet W’s requirements and brought claim for breach and misrep. -san said we have EC -EC said we have no liability for indirect and consequential loss (as opposed to direct loss from the breach) and limitation clause limiting the liability to the price paid under the contract. There was also an entire agreement clause. -CA held clause was reasonable. Said there were 3 relevant factors that were present. There were no pre-contractual representations. Also, there was an entire agreement clause, and change that W had negotiated, the S had to use best endeavours to mitigate any losses coming from a breach. -best endeavours are a strong promise and if you breach it u will have some explaining -both medium sized firms so roughly equal bargaining power. so most likely reasonable George Mitchell v Finney Lock Seeds -30 pounds of cabbage seeds for £192. Spread them over 63 acres. A lot of time and labour -cabbage seeds only produced small green leaf plant not fit for human consumption -EC said that liability is limited to price of seeds, so they excluded all consequential losses. -M had lost over 60,000 he expected to make from the cabbages -was meant to be Dutch winter cabbage- was nothing like that -should the EC apply as the seeds didn’t do job at all -Lord Denning went on about how little man should be protected! Freedom of contract strong used to oppress the weak -court concluded that this was unreasonable clause, so failed reasonable test -didn’t have any insurance and lost all crops what have the courts told us about schedule 2? What does it contain Philips Products Ltd v Hyland

-Pl hired excavator from d on standard terms of business. This said driver should be regarded as being employed by the hirer of the excavator, so any loss that the driver causes meant that would be the responsibility of the hirer of the excavator -driver was negligent in driving excavator and damaged pl factory -was the clause reasonable? Was it reasonable to include this by saying the driver was the plaintiff’s responsibility, -the plaintiff was not in the business of hiring excavators! It was more appropriate for liability to fall on defendants as they hire out excavators. -it was a standard term wasn’t negotiated separately between the parties -the hire period was very short so no chance to obtain insurance (for plaintiff) -also, not reasonable, because not pl choice to select driver, he came with the excavator,

so, from Watford Electronics we get general presumption: when B2B exclusion clauses have be read by participants and will be reasonable -we can overcome this if not equal bargaining power between parties or other factors as is seen in Philips v Hyland where it will be unreasonable to allow EC to stand.

Smith v Eric Bush -buyer of house wanted mortgage from Abbey National -said he would get copy of surveyor’s report- was hired by the bank. Neither bank nor surveyor took responsibility of the report. Smith bought the property upon the report but both bank and surveyor were excluding liability for the survey. -the house had been built negligently- chimney collapsed. Surveyor didn’t see that (any surveyor should have- he was incompetent) -so, who should bear the responsibility? Was there unfair bargaining power? bank had much more than smith. -that leads to unreasonableness. a) were the parties of equal bargaining power? b) would it have been reasonable practicable to obtain the advice from an alternative source taking into account considerations of costs and time? c) how difficult is the task being undertaken for which liability is being excluded? d) what are the practical consequences of the decision on the question of reasonableness HELD: disclaimer was unreasonable. Unequal bargaining power, not realistic to expect purchaser to pay twice for valuation -the cost of insurance coverage for surveyor would have been minor-better to spread risk

-property was of modest value if easy for 1 party to get insurance to mitigate risk then court would recommend that who has specialist knowledge here? Something anyone could have seen or one party more likely to have knowledge? So, can never exclude liability for negligence resulting in death or personal injury. Any other excluding liability for negligence will be determined if its reasonable under s 11. Schedule 2 outlines things which are relevant when deciding if its reasonable Then look at case law to see how courts deal with these issues. St Albans v ICL: illustrates importance the UK courts put on insurance cover- obtaining insurance is very important! (as is seen in Smith v Eric Bush) -ICL implementing a computer system in st albans council’s computers -ec ICL attempted to rely on in attempt to avoid liability to the council -court held unreasonable: a) significant disparity in bargaining strength b) council was under strict time pressure, so ICL had them over a barrel c) liability cap of the contract was £50,000- court looked at docs and found that ICL had products liability insurance in place of £50,000,000! iCL had significant insurance and were in a better position to face the loss! Whereas the council would have to go after the people. -exclusion clause was unreasonable! Britvic Soft Drinks Ltd v Messer UK Ltd -gas producer tried to exclude liability for any loss to 500,000 pounds (limitation clause) -court looked at clause and found it unreasonable! (difference between this case and Watford, in W even tho B2B, weaker side they had negotiated specifically with respect to the EC. It had been subject of negotiations! Whereas here there was not focus on EC itself. Court found it unreasonable case. -blanket standard exclusion clause was unfair and unreasonable. African Export-Import Bank v Shebah (2017) -court: when are you dealing under written standard contracts of business- when are you dealing with s3 of UCTA? Gave us 2 questions that have to be answered (to determine whether this is written standard terms of business or not) 1) Does relevant party habitually use those terms? 2) Has there been more than ‘insubstantial variations’ to those terms- more than just minor changes to the terms Court said if there has been more than minor then it won’t be a standard form contract If only minor can still be a standard form contract

REASONABLESS SUMMARY Watford Electronics: -Courts have to see what the meaning of the clause is. Look at clause as a whole- can’t just chop out any unreasonable bit that looks fishy- look at all circumstances. No power to sever unreasonable bits -also shows us that if parties roughly same size business, bargaining power- leave alone -also, important to find out insurance position of both parties- very significant! George Mitchell didn’t have any insurance and lost all crops! So more likely unreasonable -ICL had very good insurance, better position to face loss. And even in smith v Eric Bushbetter position of taking out professional liability insurance. -that said we construe exclusion clauses narrowly! Doesn’t apply to -contracts for sale of land -contracts for insurance -contracts for Intellectual Property -or law of Companies -some shipping contracts...