Term to exclude all statutory implied terms in a commercial contract not considered reasonable under the Unfair Contract Terms Act 1977

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The recent Court of Appeal case of Last Bus Ltd v Dawsongroup Bus and Coach Ltd [2023] serves as a useful reminder of the circumstances in which commercial parties may exclude statutory implied terms, and highlights the considerations that should be had when assessing reasonableness.  

Last Bus, a Dublin-based company operating a fleet of premium passenger coaches, entered into five hire purchase agreements with Dawson. Those hire purchase agreements were all on Dawson’s standard terms and conditions, and each one contained a clause that sought to exclude all conditions and warranties whether express or implied by law (clause 5(b)) and thus excluded the implied term under section 10(2) of the Supply of Goods (Implied Terms) Act 1973, that the vehicles would be of satisfactory quality.

The dispute came to a head in 2018 when four of the coaches caught fire. Last Bus alleged that three of those fires were caused by a defective cooling system, necessitating a more rigorous and expensive maintenance regime than should otherwise have been necessary. Last Bus claimed damages exceeding €10m on the basis that the vehicles were not of satisfactory quality. Dawson denied the allegations made by Last Bus, relying on the exclusion at clause 5(b) to argue that Last Bus was estopped by contract from bringing a claim based on the statutory implied term. 

Last Bus initiated legal proceedings in April 2020, challenging the reasonableness of clause 5(b) in Dawson’s standard terms and conditions. The High Court held the exclusion clause was reasonable and therefore dismissed Last Bus’s claim. Last Bus Appealed.

The Relevant Statutory Provisions

Under the Unfair Contract Terms Act 1977 (“UCTA”), a party to a business-to-business transaction cannot limit or exclude statutory implied terms as to the sale of goods unless the requirement of “reasonableness” is met (section 6 of UCTA). Section 3 of UCTA also requires more generally where a party’s standard terms and conditions apply that party cannot exclude or limit its liability in respect of a breach or be entitled to render no performance at all unless the requirement of “reasonableness” is met. 

The reasonableness test is set out in section 11 of UCTA. It provides that a term shall be a fair and reasonable one having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made. Section 11(2) of UCTA then directs attention to Schedule 2 for the purposes of the exclusion of statutory implied terms, which sets out the factors relevant to determining reasonableness, the first and most relevant of which being the relative bargaining positions of the parties (and what alternative means the customer could have had their requirements met).

Court of Appeal Decision

In departing from the first instance decision, the Court of Appeal held that the High Court was wrong to have approached the question of reasonableness on the basis that the parties were of equal bargaining strength. Whilst the parties may have been of equal bargaining strength as regards the price to be paid under the contract, that does not mean that they were of equal bargaining strength in respect of the terms. A supplier may be willing to negotiate on price but only willing to supply on its standard terms. 

On the facts of the case, Dawson would not have contracted without the exclusion clause and no materially different terms were available in the market for Last Bus to contract on instead. As such, the Court of Appeal found that the parties were not of equal bargaining strength as regards clause 5(b).

The Court also considered the practical effect of clause 5(b) to be a relevant factor pointing away from reasonableness. The effect of clause 5(b) would have been a blanket exclusion of any and all liability on the part of Dawson, no matter how defective the coaches may have been. It would effectively have permitted Dawson to provide no value at all under the agreements, yet remain entitled to the full amount of the hire. 

In light of these considerations, the Court of Appeal held that the High Court was wrong to hold clause 5(b) a reasonable term by way of a summary judgment application. Whilst the full decision as to reasonableness will now be determined by the trial judge in the High Court proceedings, the clear indication from the Court of Appeal is that clause 5(b) is unreasonable and will likely be held unenforceable as a result. 

Practical Implications

Last Bus Ltd v Dawsongroup highlights the nuances of assessing reasonableness and, in particular, the equality of bargaining position between the parties. It places greater emphasis on the terms being offered, and whether alternatives exist in the market, rather than simply on the size and commercial sophistication of the parties involved. This case is of wide application across all commercial sectors where standard terms are being used as well as hire purchase agreements, given the broad general exclusion that was considered under clause 5(b) of the contract and the application of section 3 and 5 of UCTA. All commercial parties should therefore take note of this case and consider whether any exclusion generally for implied terms that may be set out in any standard terms of business can fairly be considered reasonable and applicable between the parties.

For more information, please contact Lianne Edwards from our construction & infrastructure team, or Cara White from our commercial disputes team.

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