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Terms & Conditions - are you protected?

Napthens - September 2nd 2010

It can be a general misconception that if businesses exclude all liability in their terms and conditions or standard form contracts, then they are automatically protected by such provisions. However, the law says that such provisions may be automatically unenforceable under the Unfair Contract Terms Act 1977 (“UCTA”), or only offer protection to the extent that they are reasonable in accordance with the test set out in UCTA.

Over time it has generally been the case that if part of a clause was found to be unreasonable, the remainder of the clause could remain. However, a recent case may have altered this position.

In Lobster Group Ltd (in liquidation) v Heidelberg Graphic Equipment Ltd and another, a judge had to consider the effects of various clauses contained in a hire agreement, warranty agreement and service agreement, attempting to exclude or limit the liability of the owner and manufacturer of a printing press. He decided that some of the exclusion clauses contained in each of the agreements were unreasonable under UCTA, and in some cases, that unreasonableness went to the heart of the clause.

Whilst it has always been important for businesses to ensure that their terms and conditions are drafted carefully in the context of limiting or excluding liability, this decision, if followed, may result in whole clauses being deemed unenforceable if challenged at Court, which could have serious financial repercussions. Therefore you should ensure that any exclusion or limitation provisions in your terms and conditions would meet the reasonableness test by offering some degree of protection to your customers, depending upon the type of arrangement.

Essentially your terms and conditions should be fair, which in turn should afford you the ability to be able to rely on any exclusion or limitation of your liability should you need to. At Napthens we can help you make sure that you get this right for your future trading relationships.