The Exclusion Clause and the Negligent Installation
BuildCo Ltd contracted with HomeOwner to install a new heating system. The contract, signed by HomeOwner, contained a clause: 'BuildCo Ltd shall not be liable for any loss or damage arising from the installation, howsoever caused.' During installation, BuildCo's employee negligently damaged a water pipe, causing extensive flooding and £20,000 of damage to HomeOwner's property. HomeOwner had not read the clause and claims it is unfair. BuildCo argues that the clause excludes liability. HomeOwner is a consumer, and the contract was on BuildCo's standard terms. Discuss the enforceability of the exclusion clause under the Unfair Contract Terms Act 1977 and the Consumer Rights Act 2015.
1. Advise HomeOwner on whether BuildCo can rely on the exclusion clause, considering the incorporation of terms and statutory controls.
Read the worked answer
The clause must be incorporated into the contract. Since HomeOwner signed the contract, the clause is incorporated (L'Estrange v Graucob), even if unread, unless the signature was induced by misrepresentation. However, statutory controls may render it unenforceable. Under the Consumer Rights Act 2015 (CRA), which applies to consumer contracts, an exclusion clause is not binding if it is unfair. The CRA implies terms that goods and services must be provided with reasonable care and skill (s.49). A clause excluding liability for negligence causing property damage may be subject to the fairness test under s.62. The clause is likely unfair because it excludes all liability, even for negligence causing property damage, and is not individually negotiated. Under the Unfair Contract Terms Act 1977 (UCTA), which applies to business liability, s.2(1) prohibits exclusion of liability for death or personal injury caused by negligence, but here it is property damage, so s.2(2) applies: liability for negligence causing other loss can be excluded only if reasonable. The clause is broad and attempts to exclude all liability, which may not be reasonable given the bargaining position. However, UCTA may not apply because HomeOwner is a consumer; CRA governs. Under CRA, the clause is likely unfair and unenforceable. HomeOwner can claim damages for the £20,000 loss.
2. If HomeOwner were a business rather than a consumer, how would the analysis differ under UCTA?
Read the worked answer
If HomeOwner were a business, UCTA would apply. The clause excludes liability for negligence causing property damage, so s.2(2) UCTA applies: such liability can be excluded only if the term satisfies the requirement of reasonableness. The court will consider factors such as the strength of the bargaining positions, whether the customer received an inducement to agree, whether the customer knew or ought to have known of the term, and whether the goods were manufactured to special order. Here, BuildCo likely had a stronger bargaining position, the clause was on standard terms, and HomeOwner had no opportunity to negotiate. The clause is broad and excludes all liability, which may be unreasonable. However, if the clause was brought to HomeOwner's attention and was common in the industry, it might be reasonable. The court would also consider whether insurance was available. Overall, the clause is likely unreasonable and unenforceable, but the analysis is less clear-cut than under CRA. HomeOwner would need to show that the clause was not reasonable.