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The importance of terms and conditions

19 Sep 12 Exclusion clauses in your terms and conditions could save your business, reports Thomas Eggar LLP senior associate Kim Teichmann.

Thomas Eggar LLP senior associate Kim Teichmann
Thomas Eggar LLP senior associate Kim Teichmann

In Allen Fabrications Limited v ASD Limited the defendant avoided a £7m claim due to a term tha tlimited its liability to £705. A large saving for such a little clause!

A new two-storey workshop for repairing and maintaining boats was built on the Isle of Wight. The workshop included a rigid steel platform on the first floor level. Forklifts would place the boat onto the platform. The boat would then be pushed along the platform into the workshop on the first floor. The claimant was a subsubcontractor supplying the constituent elements of the platform in kit form. The platform required steel gratings to be placed over its steel members and fixed onto the steel members with clips. The defendant supplied the gratings and clips.

In 2006 a section of the grating gave way as an employee was pushing a boat on the platform. The employee fell through the platform onto the ground below and suffered serious head injuries. Damages of £7m were agreed.  The employer is now suing six different parties including Allen Fabrications and ASD. 

The issue was that 25 clips plus one spare were supplied. However more clips were required to make the platform safe. Allen Fabrications said that ASD was negligent in supplying too few clips.

ASD tried to avoid the £7m claim by relying on exclusion clauses in its terms and conditions that limited its liability to £705. ASD argued that its terms and conditions applied to the contract. Allen said they did not. 

The contract was formed in the usual way: an enquiry was sent with drawings, a quotation was provided in response, an order was placed. However, the question was whether ASD’s terms and conditions were included in that contract due to the fact that there had been a course of dealings between the parties previously. On more than 250 occasions ASD had delivered advice notes and invoices to Allen Fabrications, which incorporated ASD’s terms and conditions. 

Allen had also filled out a credit application for credit from ASD. This application also incorporated ASD’s terms and conditions.

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The court agreed that ASD’s terms and conditions were incorporated in both instances.

The court refused to find that the exclusion clauses were unfair and did not apply. Both parties were commercial entities, exclusion clauses of this type are the norm in the industry and the buyer was insured against the risk posed by the exclusion clause. 

The lesson learnt is clear. When you enter into any contract, no matter how small, ask yourself the following:

- Have we been clear about whose terms and conditions apply?

- If the contract is silent, be careful that you have not unwittingly already signed a credit application or received delivery notes or invoices incorporating terms and conditions.

- Make sure that your terms and conditions limit your liability. You may only be supplying a few hundred pounds worth of goods or services, but the claim that follows could just be for millions.

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