The Enforceability of Exclusion Clauses in UK Contracts

An instance of the application of the effect that exclusions clauses may have on contracts maybe drawn from the decisaion of the High Court in Pegler Limited v Wang (UK) Limited [2000] BLR 218.

Pegler manufactured brassware. In order to improve efficiency decided to implement a computer software system in the supply chain and issued an invitation to tender in April 1991. Wang tendered for the work and a contract was entered into in December of that year. The tender and the response lodged by Wang were incorporated into the contract.

The exclusion clauses in question excluded liability for “indirect, special or consequential loss, including … loss of anticipated profits or of data”. A further limitation barred actions more than 2 years after the events giving rise to cause of action took place.

The delays by Wang were continuing and ongoing– the cause of action arose on the first day of delay and then continued with every day of delay. As a matter of construction of the contract, and legal proceedings were required to be commenced within two years of the end of the duty to perform, either by performance or termination of the contract. Such clauses are known as time-bars, whereby the usual allowance of six years to commence proceedings is displaced.

The Decision

The judge held that:

1. Pegler had 'burnt its boats' in negotiating terms in principle and permitting Wang to start work prior to concluding the standard terms. There was no quality of bargaining power.
2. The type of exclusion clauses were standard in the industry, so more favourable terms would not have been obtained elsewhere
3. Peglar was advised by solicitors throughout the deal, and
4. Wang oversold the system, promising features and functionality that simply did not exist in the end deliverable.

Exclusion clauses historically are given a narrow meaning by courts and will not be interpreted to absolving a party from all duties and liability under a contract: Suisse Anlantique v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361, 432. It was found that it was unreasonable for Wang to rely on the exclusions and limitations when their own misrepresentations led to their own breach of contract.

Final Analysis

This case reiterates an important principle that a party may not rely on their own breach in order to claim the opposing party was in breach themselves. Technical staff should be given a role to vet representations made by sales staff, or records made of the actual functionality promised to a client wishing to take delivery of either packaged or custom built software.