FAQs re B2B contracts: are our exclusions of liability reasonable?

FAQs re B2B contracts:
- Are contracts between businesses exempt from consumer protection rules on unfair contract terms? Yes, but some clauses are still banned. And others need to be reasonable.
- All clauses? No, just some exemption and limitation of liability clauses.
- Can you summarize these in a handy way? Let’s see…

FAQs re B2B contracts: are our exclusions of liability reasonable?

The consumer protection law provisions of UCTA, the UK Unfair Contract Terms Act 1977, with various supplementary provisions originating from the EU, have been removed and incorporated into the Consumer Rights Act 2015.

However, when it comes to B2B contracts, UCTA (together with its case-law) is still very much with us (and now just a little easier to navigate).

When drafting and reviewing our contracts, and in particular B2B standard terms of business, we need to have these rules in mind. Also when we’re negotiating, they can add ammunition to our case that something is inappropriate or unreasonable.

We need to remember that it’s not always obvious that a particular clause restricts or excludes liability: for example, clauses relating to force majeure, time limits for raising claims, forfeiture of deposits, or excluding rights or set-off or counterclaim could, depending on the drafting, contain restrictions on liability subject to UCTA.

So, keeping things as simple as we can:

1. Which contracts are covered?

B2B. Not consumer contracts covered by the Consumer Rights Act. Business includes professions, but is not narrowly defined. Includes commercial property occupation.

2. Any important exceptions?

  • insurance contracts
  • creation or transfer of interests in land
  • creation or transfer of intellectual property rights or interests
  • company (or partnership) formation or dissolution, bylaws, rights or obligations of members
  • creation or transfer of securities or securities rights or interests
  • bus and coach transport
    (but provisions on excluding liability for misrepresentation do apply).

3. What about international contracts?

International goods supply contracts generally NOT covered.

For other contracts that would normally be governed by a different law, then these rules won’t apply just because the parties have chosen English law. Equally, if English law would normally apply, we can’t choose another law in order to avoid these rules.

4. What exclusions or limitations of liability are always unenforceable?

  • For death or personal injury caused by negligence.
  • For sales/hire purchase/transfers of goods: the implied terms that seller has the right to sell them, they are free from undisclosed charges/encumbrances, and the buyer will have quiet possession of them (under Sale of Goods Act 1979 and – with a few exceptions which may be acceptable subject to the reasonableness test – Supply of Goods and Services Act 1982)
  • Not in this legislation but good to remember that we can’t exclude:
    a) Fraud or fraudulent misrepresentation (common law)
    b) Product Liability (to the extent applicable) (Consumer Protection Act 1987)
    c) Statutory interest on late payments (unless another substantial remedy is agreed) (Late Payment of Commercial Debts (Interest) Act 1998).

5. What exclusions or limitations of liability may only be enforced to the extent they pass the “test of reasonableness”?

  • For any other liability caused by negligence.
  • In standard terms of business: (a) for breach of contract; or (b) for providing different performance or no performance at all.
  • For sales/hire purchase/transfers of goods, for breach of implied terms relating to compliance with description/sample, quality, or fitness for purpose.
  • For misrepresentations made before the making of the contract (See Misrepresentation Act 1967).

6. Can we find a different formula with a similar effect that would fall outside these rules?

Not easily: exclusion and limitation of liability also includes making liability or enforcement subject to restrictive conditions, or excluding or restricting rights, remedies or rules of evidence or procedure.

Also we can’t use a secondary contract to exclude or restrict liability under another contract that is covered by these rules.

7. What is the “test of reasonableness” under UCTA?

One test or three?!

1. Generally and for exclusions of liability for misrepresentation: that the term was a fair and reasonable one given the circumstances that the parties knew, or should have known when the contract was made (so – unlike for contractual notices – not whether it was fair to rely on it later).

2. If a monetary cap, then also taking into account the beneficiary’s resources and ability to insure.

3. Strictly for sales/hire purchase/transfers of goods, but often these are applied generally, so also:

a) the relative strength of the parties’ bargaining positions, including availability of alternate supplies (in practice, courts have quite often emphasised this one);
b) whether the customer received any inducement to agree to the term, or could have made a similar contract without it with another party;
c) whether the customer knew or ought to have known about the term and its scope (including based on any industry standards and any previous dealings between the parties);
d) for exclusions or limitations of liability for non-compliance with a condition, whether it was reasonable to expect that compliance would be practicable; and
e) whether the goods in question were tailored to the customer’s requirements.

But these are just some guidelines and not a closed list…

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