A supplier may add an exclusion clause to its contract documentation in an effort to limit its liability to a fixed sum, or to completely exclude its liability. The use of exclusion clauses is governed by the Unfair Contract Terms Act 1977 [amended by the Supply of Goods and Services Act 1982]. The Act provides for the following in respect of exclusion clauses:
The requirement of reasonableness
If a clause is deemed to be unreasonable, if action is taken through the courts, they will probably override it and award in favour of the innocent party.
Liability in negligence
Any clause that tried to limit a supplier’s liability in the result of death or injury is not legally enforceable under the tort (a breach of duty imposed by law) of negligence. Similarly, any attempt by a supplier to limit its liability in respect of damages caused by its negligence will also be illegal.
This refers to terms implied by custom, by the courts, or by statute. The best known example of terms implied by statue would be those laid down in the Sale of Goods Act. Basically, the statutes within the Act that relates to commercial transactions mean that, regardless of the terms that the buyer or the seller may try to enforce, if statute requires that either party behaves in a certain way, then they are legally bound to do so.
This excludes the supplier’s liability if, through no fault of its own, it is unable to perform the contract. It excludes “unforeseen circumstances” such as strikes, war, delays in manufacture, problems with sub-contractors etc. If something happens that the supplier does not perform the contract on time, then the contract is deemed to be frustrated ie it cannot be performed.
A supplier may try to impose many conditions but it should be remembered that each condition must be deemed to be reasonable under the Unfair Contract Terms Act 1977.
If you have any concerns regarding the terms being suggested for a contract, seek advice from your Head of Procurement.