Goods must be reasonably fit for purpose

The contract between Frank and Shipfit Ltd requires that Frank’s boat is serviced together with the supply and fitment of particular new parts to the boat. With a contract of this type certain measures are implied into the contract by the Supply of Goods & Services Act 1982. Where goods are supplied, a condition is implied that these goods be reasonably fit for purpose, s.4(5). And where work is carried out in conjunction with the supply of goods, a condition is implied that this work be carried out with reasonable care and skill, s.13. The level of care and skill required to be reasonable will be judged against the care and skill a reasonable person might be expected to take in carrying out the same job, Blyth v Birmingham Waterworks (1856) 11 Exch 781.

Clearly the work undertaken by Shipfit Ltd was substandard. Whilst the fitting of the regulator may have been carried out correctly, reasonable care and skill had not been taken in ensuring it was properly tested. Frank therefore has the possibility of basing his action on negligent performance and strict liability. Shipfit Ltd will only be able to avoid liability if the exemption clauses within the contract are found to be valid.

Two areas must be considered in relation to whether an exemption clause is valid. The first is whether the exemption clause will be valid under common law. Under common law if a party wishes to rely upon an exclusion clause it must be incorporated and it must also be construed to cover the breach and resulting loss. If both requirements are met it will be necessary to consider whether it is affected by the Unfair Contract Terms Act 1977 (UCTA) or the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR).

A clause can become incorporated in three ways. It could be contained within a document signed by the contracting parties, L’Estrange v Graucob Ltd [1934] 2 KB 394. Once a contractual document has been signed it is usually held that the exemption clause will be incorporated into the contract, except in cases of misrepresentation Curtis v Chemical Cleaning & Dyeing Co [1951] 1 KB 805. There is no evidence here that Frank signed the receipt when he took his boat for service so we must therefore consider the second way in which a clause may be incorporated into a contract, notice. It is the responsibility of the party attempting to rely on the clause to take reasonable steps to bring it to the attention of the other party, Parker v South East Railway Co (1877) 2 CPD 416. The reasonable steps taken to provide notice must occur before the contract is made, Olley v Marlborough Court [1949] 1 KB 532 and Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163. The final requirement with regard to notice is that the notice be contained within a contractual document, Chappleton v Barry Urban DC [1940] 1 KB 532. It does appear that steps had been taken to inform Frank of the existence of the clauses prior to his entering into the contract. The copies on the receipt and invoice will not be considered notice, Chappleton v Barry Urban DC and Olley v Marlborough Court but the board by the entrance to the boat yard may be. We must consider how small and faded the board might be and therefore whether the notice provided by Shipfit Ltd could be considered reasonable and sufficient. The nature of the clause itself may also be an issue. If this clause is found to be particularly onerous, greater steps need to have been taken to highlight the clauses to Frank. This is referred to as the “red hand rule" and is based on the findings in J Spurling Ltd v Bradshaw [1956] 1 WLR 461of Denning L.J. The final method by which a clause can be incorporated is through previous dealings. Two requirements must be met in order for a court to infer a clause based on previous dealings: there must be sufficient notice of the clause, J Spurling Ltd v Bradshaw and there must be consistency in the previous dealings, McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125. The invoice presented to Frank at the time of the service and each time his boat had been serviced previously contained these clauses. Consequently, the frequency and consistency of these previous dealings could be said to be sufficient notice.

The next issue to consider is whether the clauses cover the breach that occurred. The basic approach to construction is the contra proferentum rule which ensures that any doubt or ambiguity will be interpreted against the person wanting to rely on the clause. In dealing with limitation clauses we must also consider that the rules of construction should not be applied as rigidly as with exclusion clauses, Alisa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] WLR 964. Further to the decision in Canada Steamship Lines Ltd v The King [1952] AC 192, the courts have adopted a three stage test to the construction of exclusion clauses seeking to excluded negligence: ‘if there is an express reference to negligence it will be effective, if no express mention are words used wide enough to cover negligence and finally if the words used are wide enough to cover negligence is there any other form of liability that the party in breach could be liable for’. In this case there is no express mention of negligence in the clauses but the use of the words “howsoever arising" are wide enough to include negligence. There is also a case of concurrent liability in this scenario as was the case in White v John Warwick [1953] 1 WLR 1285. Despite the decision in White v John Warwick a more flexible approach is adopted with regard to clauses seeking to limit liability, George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803.

Statutory controls over exclusion clauses must now be considered. We need only consider UCTA as Frank does not contract as a consumer within the meaning of UTCCR. The section of UCTA to be applied depends on the basis of Shipfit Ltd’s liability. If it is negligence in the performance of the contract then s.2 must be considered. Section 2 of UCTA is concerned with clauses attempting to exclude business liability for negligence as defined in s.1(1). This section has two subsections: s.2(1) applies where death or personal injury has been suffered and s.2(2) applies to any other “loss or damage".

Shipfit Ltd’s actions amount to a breach of s.13 of the Supply of Goods and Services Act 1982. Where a breach of this kind occurs s.2 of UCTA applies and the exemption clause will only be valid in certain circumstances. Under s.2(1), no exemption for liability will be permitted if the negligent act has caused some level of personal injury. Therefore the clauses contained in the contract will not exempt Shipfit Ltd from any claim made by Frank in respect of his injured arm. With regard to the boat, Shipfit Ltd may only rely on the clause if they can demonstrate that it is reasonable, UCTA s.2(2).

Section 11 of UCTA provides assistance in the consideration as to whether a clause is reasonable or not. In dealing with limitation clauses we must refer to s.11(4) where we are required to consider the ‘resources’ available to both parties and also the matter of insurance. Frank is a small business owner and contracting with Shipfit Ltd who are likely to have much greater resources available to them to meet the liability. Shipfit Ltd may also have been able to protect against such loss by taking out insurance. Legislation expressly states in relation to limitation clauses that the person relying on the clause should be able to demonstrate that not taking out insurance to cover any breaches they make must be demonstrated as being reasonable, before the clause can be held to be effective. Given the implied size of the company it seems unreasonable for them not to have provided insurance. It could also be argued that Frank should have taken out insurance, however. Schedule 2 of UCTA provides additional guidance as to the application of the reasonableness test. The courts must consider amongst other things the relative bargaining powers of the parties, whether an inducement was received by one party to accept the clauses in question, whether the customer had knowledge of the term, or whether any specially manufactured components were required for the completion of the work, George Mitchell (ChesterHall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803. In this situation it seems likely that there will be few boat yards capable of carrying out the work required by Frank within close proximity to the River Trent. This and the implied size of the company would place Shipfit Ltd in a strong bargaining position, therefore making Frank a considerably weaker party and the exclusion clauses unreasonable and therefore void.

In order to consider strict liability we must establish whether Frank could be deemed to be “dealing as a consumer" under s.12(1). In R & B Customs Brokers Co Ltd v United Dominions Trust Ltd [1988] 1 WLR 321 it was held that in order for a party to be acting in the course of business, the transaction must be integral to the business and undertaken frequently. These services were not an integral part of Frank’s business and it could be said on the basis of the decision in R & B Customs that three or four times a year is not sufficiently frequent to construe Frank as anything other than a consumer. Under s.7(2) no liability can be excluded for breach of the implied terms against a consumer, therefore once again the clauses are found to be void.

In summary it seems likely that Frank will be able to make claims against Shipfit Ltd in respect of not only his personal injuries but also the damage to his boat, on the basis that the limitation clauses contained within the contract have been found to be void.