Yet another contract clause limiting a supplier’s liability for damages looked to be for the chop when software supplier Sanderson fought off a £5.5million damages. But did the Court of Appeal come to their rescue?
Who: Watford Electronics and Sanderson
When: February 2001
Where: The Court of Appeal
Sanderson supplied software systems to Watford Electronics on Sanderson’s standard contract terms. Much that could go wrong did go wrong and Watford ended up suing Sanderson for £5.5million. The contract price was just over £100,000.
Sanderson defended on the basis of the exclusion/limitation clause in their contract. These excluded Sanderson’s liability for consequential and indirect loss and limited their liability for other losses to the contract price.
The first instance judge held the clause unreasonable under the Unfair Contract Terms Act 1977 but Sanderson appealed. The Court of Appeal took a different view. Those involved in the initial contract were experienced businessmen representing substantial companies of equal bargaining power, the Court found. If they arrive at a deal, they can be expected to be the best judges of what is commercially fair. In such cases the Court should be slow to intervene and Sanderson’s standard terms applied.
Why this matters:
This is a welcome turn-up after a sequence of judgements in which such clauses have been rubbished by the courts. Indeed the situation had deteriorated to a position where negotiators were not bothering to argue about similar clauses on the basis that no court would hold them reasonable anyway. Clearly this decision turned on its own facts and it was obviously relevant that the protagonists were of similar size and clout. Now at least, however, there is some expectation that a clause limiting liability might be upheld by the courts, so drafters and negotiators beware!