Court decision shows benefits of negotiating to uphold liability clause
A recent High Court decision has shown how a party may actually be better off by agreeing to negotiate its contracts.
What was the case about?
In the case of Pinewood Technologies Asia Pacific v Pinewood Technologies, the High Court had to determine a dispute in two reseller agreements. The claimant claimed for loss of profit.
The claimant argued that, under the Unfair Contract Terms Act 1977, the defendant's liability clause - under which it sought to exclude liability for loss of profit - was not reasonable and it was therefore not enforceable. A liability clause can be challenged for reasonableness if either it relates to claims for negligence, or it is on the defendant's standard terms of business.
What did the High Court decide?
The judge awarded summary judgment in favour of the defendant.
Firstly, she ruled that the contract was not on the defendant's standard terms of business. For this to have been the case, she decided, they would have had to have remained 'effectively untouched'. That was not the case - negotiations had taken place including through emails and phone calls, and the parties had both accessed legal advice. There had been material changes, which rendered the terms no longer on a standard basis. It was irrelevant to this argument that the exclusion clause itself had not been touched.
The judge went on to find in the defendant's favour on other arguments including the construction of the clause overall and the meaning of loss of profit, which 'meant just that'.
What does this ruling mean for you?
This case does not create new law. However, it is a useful reminder that parties who are contracting on their standard terms and conditions may actually be better off by agreeing to negotiate them, if it means that their liability clauses are less likely to be challenged at law for being unreasonable - if the Unfair Contract Terms Act no longer applies (other than in claims for negligence).