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Exclusion clauses under UCTA and incorporating standard terms: a five-star lesson

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Exclusions of liability: deliberating on "deliberate"

The High Court finds that standard terms are successfully incorporated into a contract but determines that an exclusion clause is unreasonable under UCTA and is therefore ineffective.

Henley Homes contracted Phoenix Interior Design to provide interior design services for the refurbishment of the five-star Dunalastair Hotel in the Scottish Highlands. Henley refused to pay the balance of the contract's price after there were significant delays and arguments over the quality of the furnishings provided by Phoenix. Phoenix brought a claim against Henley for this amount. 

Henley's defence was that the amount was only payable on completion, which had not occurred as Phoenix's performance of the contract was so defective. Henley also counterclaimed that they were entitled to compensation for the defective goods. In defence to this counterclaim, Phoenix sought to rely on an exclusion clause contained within its standard terms and conditions. Henley submitted that the exclusion clause was not effective for two reasons:  

  • The standard terms and conditions (including the exclusion clause) were not incorporated into the contract. 
  • Even if the exclusion clause was incorporated, it was ineffective as it was unreasonable under the Unfair Contract Terms Act 1977 (UCTA).

Henley failed with its first argument but succeeded on its second.

The court found that the standard terms and conditions were incorporated into the contract. Phoenix had emailed an initial work proposal to Henley that stated the standard terms and conditions were "overleaf". These terms were actually attached to the email as a separate document. They had also been supplied in hard copy previously. Two revisions of this proposal followed and the terms were not included with the final proposal. The Court held that whilst the terms were not “overleaf” or attached to the agreed proposal, the contract expressly stated that it was subject to the standard terms and conditions. A reasonable person would therefore have concluded that this referred to the standard terms and conditions Phoenix had provided before. 

The exclusion clause stated: “The Seller shall be under no liability under the above warranty (or any other warranty, condition or guarantee) if the total price of the Goods has not been paid by the due date for payment.” 

The court determined that the exclusion clause was ineffective as it was not reasonable under UCTA. In reaching this decision, the court's reasons included:

  • The clause was uncommon. It was very different to a more common anti-set off clause which would have sufficed. 
  • The clause was “tucked away in the undergrowth” of the standard terms and conditions.
  • The clause was “exorbitant”. A slight delay in payment or underpayment could bar all rights of redress for the quality of goods supplied. 
  • The clause was impracticable as it did not state a fixed date for making the payment. 

The court's decision provides a welcome reminder of practical points and potential pitfalls for drafters of exclusion clauses and standard terms. 

Judgment: Phoenix Interior Design v Henley Homes

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