Court of Appeal: Exclusion Clause in Hire Purchase Agreements Challenged for Reasonableness Under UCTA

Citation: [2023] EWCA Civ 1297
Judgment on

Introduction

In the case between Last Bus Limited and Dawsongroup Bus and Coach Limited & Anor, the Court of Appeal was tasked with addressing the enforceability of a standard form exclusion clause within a series of hire purchase agreements. The legal battleground revolved around whether the clause was reasonable under the Unfair Contract Terms Act 1977 (UCTA), particularly concerning an implied term about the satisfactory quality of goods provided for in the Supply of Goods (Implied Terms) Act 1973.

Key Facts

Last Bus Limited (Appellant) entered into hire purchase agreements with Dawsongroup (Respondent) for Mercedes Tourismo coaches. Subsequently, issues were raised about the vehicles catching fire, which led to claims of them not being of satisfactory quality and, thus, exceeding maintenance costs. The Respondent relied on a clause within their standard terms and conditions, clause 5(b), to exclude liability. The main legal query was whether this clause satisfied the requirement of reasonableness under UCTA, making it enforceable against the Appellant—the Judge at first instance summarily dismissed the claim without trial.

The judgment primarily centered on the interpretation and application of several statutes:

  1. Supply of Goods (Implied Terms) Act 1973: It implies a term that goods supplied under a hire purchase agreement are of satisfactory quality (Section 10(2)).

  2. Unfair Contract Terms Act 1977:

    • Section 6(1A)(b): It states the liability for breach of the obligation, such as the implied term of satisfactory quality under the 1973 Act, cannot be excluded or restricted unless the term is reasonable.
    • Section 11: It sets out the ‘reasonableness’ test, weighing fairness and reasonability considering the circumstances known to both parties at contract formation.
    • Schedule 2: Details pertinent factors for assessing reasonableness, including bargaining power, inducement, awareness of term, feasibility of condition compliance, and specialized orders by a customer.

  3. Case Law: Previous judgments such as Photo Production Ltd v Securicor Transport Ltd, Purnell Secretarial Services Limited, Watford Electronics v Sanderson CFL, and others, have set precedents on the application and analysis of exclusion clauses. They emphasize a reluctance to undermine commercial contracts freely entered by parties of equal bargaining power, save for instances where a party is unfairly disadvantaged or a term is grossly unreasonable.

Outcomes

The Court of Appeal disagreed with the lower court’s summary judgment, citing that the Judge:

  • Adopted an incorrect starting point and approach by assuming equal bargaining power void of the context of Dawson’s standard terms, which was a predominant and unavoidable aspect.
  • Failed to properly consider all significant factors, namely the potential impact of the exclusion clause nullifying any remedy for receiving defective goods while being obligated to pay full hire—deemed prima facie unreasonable per established precedent.
  • Neglected necessary evidential matters that required a full trial, such as indemnity rights between Dawson and EvoBus and the parties’ insurance coverage.

The appellate court determined that a clause entirely excluding liability for quality, in absence of alternative contractual options in the market, prima facie fails the reasonableness test under UCTA. This approach aligns with established case law, maintaining a cautious stance towards upholding far-reaching exclusion clauses, particularly in hire purchase scenarios.

The appeal was thus allowed, necessitating a complete trial to evaluate the reasonableness of clause 5(b) comprehensively.

Conclusion

The Court of Appeal’s decision in Last Bus Limited v Dawsongroup Bus and Coach Limited & Anor reaffirms the nuanced approach required in dealing with exclusion clauses in standard terms of business. It underscores the significance of a thorough examination of the facts and circumstances under which such terms are included and compels adherence to the statutory requirement of reasonableness as set out by UCTA. The ruling serves as a reminder for legal professionals to critically evaluate the bargaining power dynamics and commercial realities influencing contract terms, reinforcing a judicious use of the summary judgment mechanism in disputes involving complex contractual provisions.