24 Dec 2014
Rachel Main, Solicitor, comments on a previous case questioning terms and conditions.
A local authority contracting organisation has been successful in its claim for £800,000 against a supplier after challenging a clause in a contract which sought to exclude the sub-contractor from liability.
The Pursuers, Dundee City Council, Angus Council and Perth & Kinross Council, combined under the name “Tayside Contracts” to carry out various tasks including road maintenance. In March 2010, Tayside Contracts asked the Defender, D Geddes Contractors Limited, to provide a quote for supply of stone chippings. The Defender’s offer to supply those from an Arbroath quarry was accepted in April 2010, incorporating the Defender’s standard terms and conditions.
In 2010 to 2011, 8,764.59 tonnes of stone chippings were purchased at a cost of £176,631.26 and used during 2010 for road maintenance programmes. However, by winter 2010 widespread problems developed with the road surfaces. Investigations showed that the problems were attributed to the composition of the stone chippings provided and accordingly an action for damages in the amount of £812,718 was raised. The Pursuer claimed that the Defender had not provided materials that were of satisfactory quality or reasonably fit for purpose in terms of the Sales of Goods Act 1979.
The action was defended by the Defender on the basis that Standard 6 of its terms and conditions restricted its liability. The clause stated: “The company will not entertain a complaint of any kind (except in special circumstances justifying delay) unless it is made in writing within 24 hours after the time of supply of the materials or goods of which a complaint is made or any materials or goods supplied by the company should be defective or in any way not in accordance with contract liability shall be limited to the cost price of the material supplied. The company is not under any circumstances to be liable for any loss or damage whether direct or indirect caused or arising by reason of the late supply or any fault failure or defect in any materials or goods supplied by them or by reason of the same not being the quality or specification ordered or by reason of any matter whatsoever.”
The Pursuers argued that a clause restricting liability should be clear and unambiguous but the clause relied upon failed those tests because the limitation and exclusion elements were “mutually inconsistent.” It was therefore “void for uncertainty.”
The Defenders said that the court should prefer a construction that gave effect to the clause as opposed to one which rendered it void as the parties clearly intended to restrict liability. The Defenders said that the Court should adopt the “blue pencil” approach whereby a court finds that part of a contract or clause is void or unenforceable, but the other part of the contract is enforceable. They noted that the Court could simply just draw a line through the second sentence of the clause and enforce the rest of the contract.
Lord Woolman held that the clause had been poorly drafted and found in favour of the Pursuers. He said that the clause imposed an “extremely tight timescale” on the person entering into the contract who had to make any complaint in 24 hours. Such a timeframe appeared to be unrealistic especially as any issue with stone chippings would likely not be immediately apparent. He also declined to adopt the “blue pencil” approach, noting it would turn a claim in which there was no liability into one which there was restricted liability and that did not make commercial common sense.
This case shows the importance of well drafted terms of business for your company and the possible risks involved with having vague or overly restrictive clauses in your terms. This therefore highlights the need to seek proper legal advice when drafting terms and conditions.