Liability Negligence Contracts

QUESTION

Prucilla, the proud owner of an art gallery, agreed that Shady would supply and install a ''first class modern lighting system'' at Prucilla's premises. The particular make/type of system was specified by Prucilla. It was agreed that the work would be completed in the second two weeks of July when Prucilla and his staff took their annual holiday, and prior to the opening of a major exhibtion at the gallery in August.

The work was delayed due to a difficulty in obtaining the necessary building materials, and the art gallery had to remain closed for a further two weeks resulting in a loss of earnings to Prucilla of £6,000. Two months after installation the system overheated causing a fire which resulted in damage to the gallery and other losses estimated at £25,000. Prucilla was injured whilst trying to ensure the safety of her customers.

The agreement signed by Prucilla contains, in small print, the terms of business of the Association of Heating Installation Engineers and included aclause which provided that:

(a) Shady accepts no responsibility for latent defects in equipment supplied to the customer's specification.

(b) any dates given for delivery or completion are estimates only.

(c) The liability of Shady, howsoever arising, whether by reason of negligence or otherwise, shall not exceed £10,000.

Discuss any liability which Shady may have incurred to Prucilla, and the effect of the above clauses on such liability.

Prucilla's Gallery – Problem Question

If Prucilla tries to sue Shady, and can establish causation and negligence on his part, he will no doubt try to rely on the exemption clauses that he included on the document that Prucilla signed, and which he believes protect him from liability. With reference to the exclusion clauses included by Shady it is important to determine whether they are enforceable and if so what their effect is on Shady's liability to Prucilla. Exclusion clauses must overcome two hurdles in order to be enforceable, they must be incorporated, and must on its construction cover the breach in question. If an exclusion clause satisfies both of these hurdles it is necessary to determine if it is affected by the Unfair Contract Terms Act 1977 (UCTA) or the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR).

The first hurdle is incorporation, which, is that the clause must have been put forward before, or at the time the contract, was made. If it is introduced later it is not considered part of the contract as was illustrated in the case of Olley v Malborough Court (1949), where an exemption clause on the rear of a door in a hotel bedroom was not held to be incorporated as the contract had been made at the hotel reception desk. How does this apply in the case of Prucilla? Prucilla could try and claim that she entered the contract with Shady on the phone, he agreed to do the work and she paid the fee, thus meaning that all the essential elements of a contract are present. If that was the case then the document containing the exclusion clauses could be said to have come too late thus making the clauses void and unenforceable. This would mean that if Prucilla can establish and prove Shady's liability she would be entitled to full damages – not the limited sum of £10,000. If on the other hand the point of timing is satisfied, Prucilla will face difficulty arguing against incorporation of the terms on the basis of lack of reasonable notice, the test that was established by Parker v South Eastern Railway (1877). Since she signed the document with Shady she will be deemed to have notice of its terms.

The issue of timing is an important one, certainly the fact that Prucilla wants the work done before a major exhibition could be considered as a conditional that is central to the contract. By looking at the case of Bunge Corporation v Tradax Export SA 1980, we can see how delay destroyed an entire contract. This case could be used in favor of Prucilla, as the strictness of time condition is central to the contract between her and Shady. However Shady could form a defense using the case of Torvald Klaveness A/S v Ami Maritime Corporation 1994 where he could challenge the time condition and claim that it was a warranty. Here it is also important to consider innominate terms – which have given flexibility and this has ‘infringed' certainty. If the courts are unable to distinguish whether the issue of timing is a condition or a warranty because it could be either, this will become an innominate term of the contact.

It is clear from the facts of the case that Prucilla and Shady have embarked on a contract, be it on the phone as discussed above, or otherwise. Prucilla presumably will have asked Shady for a quote (being an invitation to treat) and it would be sensible to presume that he has then made an offer to do the work within the time frame at a set price. Prucilla makes her acceptance clear in two ways, both by signing the agreement with Shady, which is also her acceptance of the terms and conditions, and also by conduct, i.e. allowing the work to commence. Prucilla and Shady both display intention to form legal relations, it would have been clear to both parties that they were creating a legally binding agreement – something that is reflected in Shady's terms of contract. Within the contract that was made there is an example of executed consideration, Prucilla has completed all of her obligations under the contract, however Shady has not performed his obligations inside the pre-defined time frame.

Assuming that the clauses included by Shady are incorporated into the contract, we need to consider whether the clauses cover the various breaches that have occurred. Normally the courts take the common approach of the ‘contract profentum rule' meaning that any ambiguity will be interpreted against the person trying to rely on the clause. In White v John Warwick it was held that the phrase “nothing shall render the owners liable” referred only to strict liability under the contract, not to liability of negligence. In recent cases however, the Court of Appeal has emphasised the undesirability of seeking strained construction of clauses in order to strike them down; for example in George Mitchel v Finney Lock Seeds [1983]. Intervention in the area by the use of UCTA to protect the claimant, and in particular the consumer claimant, means that the courts should simply give the words of the clause their natural meaning, using a more literal approach.

What is a consumer?

There is an issue of what is a consumer as both UCTA and UTCCR give different definitions. Looking first at UTCCR reg.2 states that a consumer is a ‘natural person' contracting for purposes outside his business. The corresponding provision in UCTA is s.12. it does not explicitly define what constitutes a consumer but it does state that under section 12 a person deals as a consumer when he does not contract “in the course of a business” and does not “hold himself out as doing so”. There is an additional requirement, which is relevant in the case of Prucilla concerning contracts for the sale of goods. That being that the goods must be of the type “ordinarily supplied for private use or consumption”. If not then that person will not be classed as a consumer. In the example of Prucilla, UCTA exists to cover business-to-business transactions. Prucilla is not contracting for purposes outside her business and is clearly acting in the course of a business. This means that under the provisions of both UCTA and the UTCCR Prucilla is not defined as a consumer but as a business and will be treated as such; the same is true of Shady. UCTA places a number of restrictions on the contract terms businesses transacting together can agree to; specifically it lays down rules for the ways in which vendor businesses can use exclusion clauses to limit liability in certain areas.

If Shady succeeds on the incorporation, and construction of his exclusion clauses, he will still have to get his exclusion clauses over the final hurdle of UCTA. Section 2 of UCTA deals with negligence, It is assumed here that the preliminary cause of Prucillas problems is Shady's negligent workmanship. Section 2(1) says that in relation to personal injuries caused by negligence there can be no exclusion of liability. This means that in terms of Shady's liability for Prucilla's injury he will not be able to rely on the clause at all. The same approach to personal injury is taken in the UTCCR. In relation to other loss and damage caused by negligence, section 2(2) of UCTA says that an exclusion clause will only be liable insofar as it satisfies the requirement of reasonableness. This is set out in s11, and states that a clause must be a fair and reasonable one to have been included in the contract. The test relates to the time that the contract was made, not the time it was broken. There is little guidance from the case law as to how exactly the test should be applied.

It is important to consider the terms of the contract, both express and implied, before we can assess the liability that Shady may have incurred. The main express term is that “it was agreed” that the lighting system “would be completed in the second two weeks of July”. This is a written term, and both parties agree to abide by that obligation. It is important to consider whether Prucilla would have entered into a contract with Shady if this had not been a term of the contract. In my opinion if Prucilla had not had the reassurance that the work would be completed before the “major exhibition” in August, she would not have entered into the contract, thus making the above a highly important term which induced Prucilla into the contract with Shady.

Sale of Goods Act 1979

Any contract that is made for the sale of goods is subject to the Sale of Goods Act 1979. Sections 12,13 and 14 are automatically applied to any contract. For Prucillas case I will be focusing on section 14 subsections 2 and 3. Section 14 subsection 2 is concerned with satisfactory quality. It is clear from the example that the goods were not of satisfactory quality however what the courts will face is a battle over what is a reasonable period of time from the time of sale, and it appears obvious that a period of two months is unacceptable. [Insert case examples]. Subsection three also touches on the fact that the goods must be fit for their purpose, in this case it is arguable that the goods were fit for their purpose, however due to their unsatisfactory quality they did not last to be fit for that particular purpose for a reasonable period of time. Section 14 subsection 2 of the Sale of Goods Act 1979 contains five requirements for satisfactory quality, four of which are relevant to Prucilla's case. The act first states that goods must be fit for their purpose, which is something I have addressed above. The goods must also be safe, which they clearly are not if they overheat causing the fire, which ultimately results in the injury of Prucilla. This is continued into the third requirement, “goods must be free from defects” clearly for a “first class” lighting system to overheat to the point where it overheats there is reasonable cause to believe there is a defect. The fourth requirement states that goods must “function properly for a ‘reasonable' period of time” obviously this is subject to the reasonableness test, however it is likely that Prucilla would have grounds to claim that a period of 2 months service is not a reasonable period of time.

Goods and services act

Assuming that the installation of the lighting system was a service, there are a number of things that need to be taken into consideration, particularly the application of the goods and services act. In a contract for the sale of services, where the supplier (as in this case) is acting in the course of business – terms are automatically applied that the supplier will exercise reasonable skill and care in delivering the service, and that the services will be carried out in a reasonable time. Obviously in Prucilla's case the only applicable section here would be that “services will be carried out in a reasonable time”. In this case reasonable would be decided by what the parties (Prucilla and Shady) had in mind at the formation of the contract; “it was agreed that the work would be completed in the second two weeks of July”. It could be argued by Prucilla that because she had in mind for the work prior to the major exhibition in August and instead the gallery had to remain closed for a further two weeks, that the service was completed but in an unreasonable time.

The court may be influenced by the practice in other parts of the industry as was displayed in the case of Mitchell v Finney Lock Seeds. In the end the court has simply to decide whether the level of exemption was reasonable in all the circumstances. In this case, was it fair and reasonable for Shady to exclude his entire liability for ‘latent defects in equipment', alongside his liability for delivery and completion dates and to limit his entire liability through negligence or otherwise to £10,000. It might have been reasonable for him to limit his liability to £10,000 excluding negligence, as due to UCTA he is unable to exclude his liability for negligence. Indeed had he totally excluded liability then all three clauses would be dismissed as void and unenforceable. Similarly to negligence, he is unable to use clause (a) to exclude his liability for latent defects, as all contracts are affected by the Sale of Goods Act. Again, the application of the provisions of the UTCCR would result in a similar result.

In conclusion, then, it seems that Prucilla has a good chance of success. Shady's strongest ground probably relates to the construction of the clause. In that it does seem to cover the breach that has occurred. However, even if Shady can show that the clauses were part of the contract with Prucilla the effect of UCTA and the UTCCR will be that he will certainly be unable to avoid liability for Prucillas injury, and may well be liable for the other damages.