Unfair Contract Terms Act used to strike down exclusion clauses

Facts

Hillmead was manufacturing bonded panels for a shop-fitter working on Primark stores.   Hillmead purchased laminated sheets from which to make the bonded panels from a specialist distributor, Saint Gobain trading as IDS. IDS submitted its standard terms and conditions with extensive exclusion clauses, as part of negotiations. Unfortunately the laminated sheets supplied were defective in quality and a number of the bonded panels made up by Hillmead failed when installed. IDS sued for the price of the laminated sheets they had supplied, and Hillmead counterclaimed for £250,000. IDS's defence of this counterclaim was based upon the exclusion clauses in its standard terms.

Held

The IDS standard terms had been properly incorporated into the contract and were binding upon the parties; but the parties were not of equal bargaining power. Saint Gobain/IDS had a turnover of £111m and Hillmead was a small company turning over just £2m.  Furthermore Hillmead needed Saint Gobain's specialist product to fulfil its contract.

Because of this inequality in bargaining power, IDS could not prove on the balance of probabilities that its exclusions of liability were reasonable.  Therefore Hillmead was allowed to proceed with its counterclaim.

Comment

This was a preliminary issue on whether IDS's exclusion clauses, in its standard terms, simply prevented the case from going ahead.  The Court disallowed them.

The Unfair Contract Terms Act puts the burden of proof upon a defendant who is being sued to prove, on the balance of probabilities, that his standard terms are reasonable.  Schedule 2 to the Act lists the criteria for reasonableness.  The primary criterion is simply whether the parties are of unequal bargaining power.  Everything depends in a case like this upon the particular facts and the Judge's perception of fairness and reasonableness.

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