Unreasonable terms excluding liability for breach

28/06/2007

The High Court has held that an exclusion clause in standard terms of business purporting to exclude all liability for any breach of contract was unreasonable under the Unfair Contract Terms Act 1977 ("UCTA") and, thus, unenforceable.

The claimant, Regus (UK) Ltd ("Regus") had entered into an agreement with the defendant, Epcot Solutions Ltd ("Epcot") to provide Epcot with serviced offices. The agreement was on Regus' standard terms of business and purported to exclude liability for any loss of business, loss of profits, loss of anticipated savings, loss of or damage to data, third party claims or any consequential loss (the "exclusion").

During the course of the agreement, Epcot made various complaints about the air conditioning, which was allegedly defective. Regus subsequently suspended its services to Epcot and issued proceedings seeking sums due for office services up to the end of the term of the agreement. Epcot counterclaimed for misrepresentation and breach of contract due to Regus' failure to repair the air conditioning. Regus sought to rely on the exclusion.

The court ruled that:

  • The air conditioning had been defective and Regus had been negligent in failing to supply proper air conditioning. Epcot was entitled to recover damages for any loss that it suffered, subject to the effect of the exclusion.

  • It was entirely reasonable for Regus to exclude damages for loss of profits and consequential losses from the categories of loss for which it would become liable when in breach of contract. However, the exclusion did not satisfy the test of reasonableness set out in section 11 of UCTA: the term must be fair and reasonable, 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. The clause deprived Epcot of any remedy for Regus' failure to provide a basic service (air conditioning) and was unreasonable.

  • A court may not sever a clause that fails to meet the requirements of UCTA and so the exclusion was of no effect. Epcot could, therefore, recover damages in respect of the air conditioning failures.

    • ([i]Regus (UK) Limited v Epcot Solutions Limited [2007] EWHC 938 (Comm))

    Contact: maustin@city-law.net

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