Question 3

The contract is between Bob and Rads and by the facts there is an agreement to
install heating system for £6000 in total and all the elements of contract –
agreement, consideration, intention to create legal relations are prima facie satisfied.
This is a business to business contract ie bob is a property developer seeking Rads’
services for his buy-to-let property in the course of his business. As the contract is to
install heating system the Supply of Goods and Services Act (SGSA) 1982 will apply.
Relevant Terms
Boiler Bursting
The engineer found a hairline crack in the boiler and found two possible reasons for
the hairline crack:
a) Defect in the boiler
b) Rough handling during installation
The inherent defect in the boiler would breach the implied condition as to the
satisfactory quality of the boiler under s 4(2) of SGSA 1982. It would also breach the
implied condition under s 4(5) of SGSA as to the boiler being reasonably fit for the
purpose to which it is supplied. The breach occurred when Rad was acting in the
course of business. The implied term is a condition ie main term of the contract
which goes to the root of the contract. The effect of the breach of condition is that
Bob can terminate the contract and claim damages for additional losses of personal
injury, damaged kitchen and the repair costs.
The rough handling of the boiler during installation by Rads (acting in the course of
business) would breach implied terms to exercise reasonable care and skill under s
13 SGSA. These terms are not classified as conditions or warranty (minor term
which is less important). These are innominate terms ie terms that are neither
condition or warranty but are treated as conditions if the breach substantially
deprives the benefit of the contract to he innocent party. In the present case the
negligent act of Rads caused the bursting of the boiler which substantially deprived
the benefit of the boiler (Hongkong Fir Shipping Co Ltd v Kawasaki Kisen
Kaisha Ltd) and hence Bob may terminate the contract and claim damages. As
termination is not possible in the present facts, he may claim damages.
Exemption Clauses – Do they cover both the breach and damage?
Exemption clauses seek to exclude or restrict liability if a breach occurs or a tort is
committed. In the present case we have Clause 15 and 16 in Document F. As the
exemption clauses are in the quotation and not signed agreement, it is necessary to
check whether they are incorporated in the contract.
Incorporation of exemption clauses can be by:
 Signing
 Notice
 Previous course of dealings.
As the quotation is unlikely to be signed by Bob and Rads and facts not stating if
they had any previous course of dealings, the issue is whether it is incorporated by
notice. Document D contains a note ‘IMPORTANT’ in bold and states that the goods
and services supplied are subject to the conditions set out in Document F. The note
is legible (L’estrange v Graucob Ltd).
Can quotation be considered as contractual in nature? In Chapelton v Barry the
ticket for a deckchair was not considered contractual in nature. However, in Parker v
South Eastern Railway, the ticket was held to be contractual in nature and said to
be giving actual notice of the terms. The bottom note in document D may be
considered as giving constructive notice (Parker v southern Eastern Railway). It is
likely to satisfy the standard of drawing attention to it in the explicit way as stated in
Spurling v Bradshaw by Lord Dening MR. Further, even if it is considered onerous
or unusual clause as in Thornton v shoe Lane Parking Ltd (which in this case
Clause 15 is likely to be as it excludes all liability. It is likely to satisfy Spurling
standard on positioning of the notice and hence is likely to be incorporated.
Construction or interpretation of Exemption Clause
Clause 15 excludes all liability for failure of materials or workmanship resulting any
loss or damage. The first part seeks to promote customer satisfaction at their own
discretion. This is likely to be vague and hence applying the contra proferentem rule,
Bob may argue that Rads relying on this ambiguous clause should be construed
against them (Houghton v Trafalgar Insurance).
As Clause 15 seeks to cover wide range of complaints, Canada Steamship Lines
v The King guidelines would apply and as the clause does not contain express
reference to negligence and the words ; however rising’ are wide enough to contain
negligence and also strict liability in terms of satisfactory quality, the court is likely to
decide the clause should be restricted to other clause and not negligence. But the
courts do take relaxed approach in commercial cases where parties are in equal
bargaining power (Monarch Airlines v London Luton Airport) and the words ‘any
failure of materials or workmanship resulting in loss or damage’ may well cover
negligence and very serious breach as long as it is clearly worded. (Photo
Productions Ltd v Securicor Transport Ltd). The wording may not be very clear
but it could be argued either way as the mentioning of materials and workmanship
are specific.
Clause 16 is a limitation clause requiring written notice of any complaint within 7
days of completion of job. The limitation clause is generally construed less strictly
and this is likely to cover the breach.
Unfair Contract Terms Act (UCTA)
UCTA applies to any clause excluding, limiting or otherwise restricting liability,
including clauses which make liability/enforcement subject to onerous conditions and
any clause which subjects a person to prejudice because of enforcing remedy (s. 13
UCTA).
Rads may not be able to exclude liability causing personal injury due to negligence
caused ( s 2(1) UCTA). The exemption will be void.
The loss and damage caused to the boiler as well as kitchen caused by negligence
falls under s 2(2) of UCTA and is subject to reasonableness test.
Reasonableness of Exemption Clauses
The test of reasonableness under s 11(1) UCTA states that the exemption clause
must have been a fair and reasonable one having regard to the circumstances
known to the parties and are withing the reasonable contemplation of the parties.
The burden of proof is on Rads (s 11(5) UCTA). The court may consider guidelines
in Schedule 2 of UCTA as well as case law.
 Rads is in a relatively stronger position as they imposed terms on Bob at the
time of quotation. However, Bob chose Rads over others and hence Rads
may argue that Bob made an informed choice and was not intimidated. Also,
both parties are businesses.
 There may be an inducement of price as Bob chose Rads out of other parties
and Rads advertises itself as ‘high quality and low prices’.
 The clauses are likely to be incorporated although they are onerous.
 The compliance with the clause may not be practical as Bob must submit
written complaint within 7 days. The issues in relation to workmanship and the
boiler may prop up even after 7 days.
 As per S 11(4) UCTA Rads is expected to have resources to meet the liability
as the amount is £5120 a relatively small amount for a business and the court
is likely to expect Rad sot have covered itself with insurance (Smith v Eric
Bush; St Albans City & District Council v International Computers Ltd).
As Bob tried to call Rads and had no choice but to call an engineer bob has acted to
mitigate the loss. There is no contributory negligence from Bob from the facts.
The whole clause must be reasonable and if the part of the clause is unreasonable
the court may invalidate the clause (Stewart Gill Ltd v Horatio Myer & Co Ltd).
The clauses may be argued to serve different purposes (Watford Electronics Ltd v
Sanderson CFL Ltd). As the clause excludes personal injury and property damage it
is likely to be void (Phillips v Hyland).
Remedies
As mentioned above Bob may terminate and claim damages as these are breach of
conditions and innominate terms which deprive substantial benefit of the contract.
The aim of the damages is to compensate and not punish ie as far as money can do
it, to be placed in the same situation with respect to damages as if the contract had
been performed (Robinson v Harman).
Remoteness
Bob will not be awarded damages if the loss is too remote a consequence of the
breach. Applying the test of remoteness as stated in Headley and Baxandale, the
damage to boiler, personal injury ( hospital costs), kitchen and repair costs arose
naturally from the ordinary course of things which should have been in the
reasonable contemplation of Rads dealing with electrical fittings and Bob is likely to
succeed.
Bob may also claim separately in tort for the personal injury as he is still suffering
from pain and discomfort and needs treatment at the hospital. The facts are silent
about any loss of earnings to Bob and require further information. There do not seem
to be any argument Rads can rely on in the Law Reform (Contributory
Negligence) Act 1945.