Excluding Liability for Implied Terms in B2B Agreements – a 2020 Case Study

This post has been contributed by Mr Rick Canavan, Module Convenor for Commercial law.

Hand holding a en about to sign a contract

Once again, this year it is the Scottish Courts that are the main source of reported sale and supply of goods cases. The decision of the Sheriff Appeal Court in Caithness Flagstone Limited v Ballyvesey Holdings Ltd.[1] provides a helpful contemporary illustration of the challenge posed by the Unfair Contract Terms Act 1977[2] which clearly limits the parties’ absolute freedom to contract on the terms they wish but in doing so, allows the courts, ostensibly, to ensure some baseline level of ‘fairness’ within an agreement. The difficulties of asking the courts to make an agreement ‘fair’ are extensively explored elsewhere so the purpose of this piece is to look at how the courts tackle an UCTA problem.

Caithness took a stone crusher supplied on higher purchase terms by Ballyvesey. It performed poorly and broke down regularly. The Sale of Goods (Implied Terms) Act 1973 implied terms into the agreement as to their quality and fitness for purpose – the terms are effectively the same as those implied by the Sale of Goods Act 1979. The contract also contained an extensive but very clear exclusion clause, which excluded the statutory implied terms, leaving Caithness without a remedy for the alleged defects in the crusher. This is clearly ‘unfair’ but is it unfair for the purposes of the Unfair Contract Terms Act 1977 (s.17)?

The judge found that it was not. This seems to reflect a growing trend in decisions over the last 20 years to accept that the parties are the best judges of the bargains they have reached and sometimes, while an exclusion of liability may seem an unusual thing to agree to, this is what has been agreed and that must be upheld. That is particularly true in cases such as this, where the parties have very experienced staff, are well-established in their sector, are of equal bargaining power and could have chosen to deal with each other or not (as there are other similar suppliers) and signed an agreement which contained not only a very clearly written exclusion but which also explicitly referenced that exclusion it in the signature section, calling on the party burdened by it to sign only if they are aware of it and accept it. In circumstances such as this, it is difficult to see that the judge could have reached a different result. But why not read the case and judge for yourself?

[1] Which applies in Scotland just as it does to cases decided in England & Wales.

[2] [2020] SAC Civ 1

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