Exclusion clauses in hire purchase agreements - a reminder of the approach

The Court of Appeal’s judgment in Last Bus Limited (trading as Dublin Coach) v Dawsongroup Bus and Coach Limited and another [2023] EWCA 1297 is a useful reminder of the appropriate starting point for construing clauses in standard hire purchase agreements that purport to exclude implied terms.

It also sets out some key considerations to have in mind when analysing the parties’ relative bargaining positions in order to determine whether a clause is reasonable for the purposes of the Unfair Contract Terms Act 1977 (UCTA).

Background

Last Bus acquired some vehicles on hire purchase from Dawsongroup. The agreements between Last Bus and Dawsongroup contained a clause excluding all warranties as to quality, fitness, specifications or description, whether express or implied.

Some of the vehicles caught fire, and Last Bus sued both Dawsongroup as hire purchase entity as well as EvoBus (UK) Limited as supplier of the vehicles, alleging that the vehicles were not of satisfactory quality. Dawsongroup applied for summary judgment on the basis that any such term was excluded from the agreement between it and Last Bus.

UCTA

Under this legislation, limitation and exclusion clauses regarding the quality of goods in hire purchase agreements and more generally in a business’ standard written terms are only enforceable if the term satisfies the “reasonableness test” - an assessment the court makes taking into account a range of circumstances, including the strength of the parties’ bargaining positions relative to each other.

The summary judgment hearing

The judge awarded summary judgment against Dawsongroup, finding that the exclusion clause was reasonable under UCTA. In particular, the judge found there was no inequality of bargaining power between Last Bus and Dawsongroup because:

• Last Bus’ requirement for vehicles could be met by entering into a different type of agreement and/or by contracting with a different supplier
• Any hire purchase terms available on the market would have come with a similar clause, and
• Last Bus ought to have known of the existence of the clause given it had previous dealings with Dawsongroup

There was therefore no need for a full trial to consider if the exclusion clause satisfied the test for reasonableness, and so the judge awarded summary judgment in favour of Dawsongroup.

The Court of Appeal

The Court of Appeal overturned the summary judgment award, noting that:

• The rationale behind the relevant UCTA sections is that customers contracting with a business on its written standard terms are considered not be of equal bargaining power.
• The exclusion clause in this case was in effect a blanket exclusion of all liability, allowing Dawsongroup to provide no value to Last Bus while leaving Last Bus without a remedy, while still entitling Dawsongroup to the full amount of the hire price. The proper starting point is that such clauses are prima facie unenforceable.
• When considering the reasonableness of standard terms and equality of bargaining strength, it is important to have in mind the distinction between an ability to negotiate as to price (which large commercial parties may have to some degree) and as to terms, which they may not.

Given that Dawsongroup would not have contracted without the exclusion clause and the fact that the trial judge found that no materially different terms would have been available, the first instance judge could easily have concluded that the parties were not of equal bargaining strength. 

Accordingly, the Court of Appeal considered that the case was not suitable for summary disposal as there were “obvious” matters that should be investigated. There was no evidence, for example, of Dawsongroup’s rights against EvoBus or the insurance position of the parties. Those factors would have a significant impact on the issue of reasonableness and would need to be examined at a full trial.

Comment

Whilst the Court of Appeal’s judgment is useful as guidance on the approach to be taken when construing exclusion clauses under UCTA with reference to the parties’ bargaining power, it is perfectly possible that the court will find the clause to be reasonable after a full trial. The Court of Appeal’s judgment made clear that it should be slow to interfere with a first instance judge’s assessment of a contract term made following a full trial, and hire purchase (and other) businesses trading on their own standard terms will want to keep a watching brief for the lower court’s judgment.