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Strike Out Ruling Shows Dangers of Hiding Away Unusual Exclusion Clause

on Thursday, 24 June 2021.

Parties to commercial contracts often look to exclude liability or responsibility. Those clauses can take many forms. The Unfair Contract Terms Act requires exclusion clauses to be reasonable in order to be enforceable.

 In the case of Phoenix Interior Design Ltd v Henley Homes plc, the High Court has struck out a clause that was "unusual and exorbitant"

The High Court Findings

The clause sought to preclude the seller from having any liability under the warranty for the goods if the total price of the goods had not been paid by the due date for payment.

The High Court was very critical of this clause. It found the exclusion to be ineffective, as it was "unusual" and, in the words of the judge "tucked away in the undergrowth of" the terms and conditions without being highlighted to the customer.

The judge also thought It was "exorbitant" - given that even the slightest of delays would leave the customer without any rights of redress at all against the supplier. 

Coronavirus Legal Advice

How to Safely Include an Exclusion Clause in Commercial Contracts

This case does not create new law, but highlights an important issue. As a practical step, if you want to have an exclusion in your contract, you should make sure that it is clearly highlighted and in the place it could be expected to be found. Do not just hide something onerous away in an unexpected place in the small print. Clearly signpost the restriction, if you want it to be upheld.

Do Your Terms and Conditions Apply to Your Contract?

Another point that came up in the case was the judge having to rule whether the supplier's terms even applied to the contract at all. Were they incorporated into the contract? Although there was reference to the terms and conditions being found "overleaf", they were in fact not there. The supplier had actually provided the terms and conditions in other ways such as in hard copy and by email. On the facts of the case, the judge decided the terms and conditions were incorporated into the contract. However, to enhance the chances of the terms and conditions being applied, they should be readily made available, particularly in the way suggested elsewhere. The fact that the terms and conditions were not where they should have been may have further influenced the judge's decision on whether the clause at issue was unreasonable and should not be upheld.

If you would like advice on the critical liability clause in your commercial contracts, please contact Paul Gershlick in our Commercial Contracts team on 07795 570072, or complete the form below.

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