Business contracts – what’s reasonable?
The Court of Appeal recently looked at whether it was reasonable to exclude a statutory implied term from a hire purchase agreement between two businesses
In Last Bus Ltd v Dawsongroup Bus and Coach Ltd  the parties entered into a hire purchase agreement based on the defendant’s standard terms of business. These excluded all conditions and warranties either expressly or implied by law. The hirer later claimed that the coaches provided to them were not of a satisfactory quality as required by Section 10(2) Supply of Goods (Implied Terms) Act 1973 and claimed damages for breach of this statutory implied term.
The defendant applied to have the claim dismissed at the summary judgement stage, meaning that the High Court had to consider if the parties’ argument (about whether the statutory implied terms had been excluded from the contract) merited going to trial.
Under the Unfair Contract Terms Act 1977 (“UCTA”) exclusions or limitations of liability in standard terms and conditions between two businesses must be “reasonable” – in other words is it fair and reasonable for the term in question to form part of the contract given the circumstances which were (or should have reasonably been) known to both parties. The High Court judge decided the parties were of equal bargaining power and concluded that, because no materially different terms were available in the relevant market, summary judgement could be given. In other words, the judge thought it was sufficiently clear that the exclusion of the statutory implied term as to quality was reasonable that the case did not justify going to a full trial to examine the facts in more detail.
The claimant then appealed the decision. The Court of Appeal decided the real question was not so much whether the parties had equal bargaining power but whether there was equality between them in relation to the terms they contracted on. If similar terms were used elsewhere in the market, the claimant had little option but to accept the defendant’s standard terms, so the parties’ position was not as “equal” as it might appear on first sight.
The Court of Appeal also pointed to the fact that the defendant’s standard terms seemed to have the effect of giving the claimant no remedies even if the defendant failed to supply the coaches at all, and so they concluded that the terms were unenforceable because they were unreasonable.
While the decision depended on its particular facts, it is nonetheless a useful reminder that care needs to be taken where businesses are contracting on standard terms and conditions – that UCTA applies not only in the context of contracts with consumers but it can also impact on the enforceability of B2B contracts. It is understandable that a business will want its standard terms to be as protective as possible, but if these go too far a business’s standard T&C could back-fire and end up causing more harm than good.
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