UCTA fails to protect against template contract terms

In Pinewood Technologies Asia Pacific Limited (the claimant) v Pinewood Technologies PLC (the defendant) 13 October 2023, the High Court agreed with the defendant that the claims against it for various breaches of general contractual obligations, were subject to exclusion clauses.

The exclusion clauses were not subject to the "reasonableness" test under Unfair Contract Terms Act 1977 (UCTA) as the agreements did not constitute the defendant’s written standard terms of business.

The court held that the claim was for "loss of profit" and so was subject to an effective exclusion clause which used those words.

The background

The defendant, a UK developer and supplier of a dealer management information system for the automotive industry, entered into two exclusive reseller agreements with the claimant, an unrelated Hong Kong company (despite the similar names).

In July 2022, the claimant initiated a claim against the defendant, alleging the defendant had breached a number of its obligations under the reseller agreements (e.g. keeping the management system up to date and compliant with various legal requirements) and seeking damages for loss of profits, wasted expenditure and consequential loss.

The defendant countered and later applied for reverse summary judgement, saying that: i. the exclusion of liability clause in the reseller agreements excluded the claimant's claims for loss of profits and wasted expenditure; and ii. the claimant could not continue to withhold unpaid fees under the reseller agreements, which the claimant had withheld on the basis of an equitable set off, because of the express clause excluding the right of set off in the agreements.

In response to the defendant’s counterclaims and application for reverse summary judgement, the claimant asked the court for permission to change its pleadings to rely on UCTA and rebut the defendant’s use of the exclusion of liability and exclusion of set off clauses, as the parties were contracting on the defendant’s written standard terms of business and so these clauses needed to  meet the UCTA reasonableness test.

Judgement

1. The claimant’s application to amend - were these written standard terms of business, subject to UCTA? The court rejected the claimant’s UCTA argument as, whilst the reseller agreements were based on the defendant’s standard form reseller agreement, they were the result of real negotiations and a number of material changes had been made to the template agreement by both parties - even if the limitations on liability were untouched;
2. The defendant’s application for reverse summary judgment - were the exclusion clauses enforceable? The claimant argued that it was not appropriate to make a final decision on the construction of exclusion clauses at summary judgement stage. The court did not agree given the lack of factual complexity and there was no suggestion that additional “factual matrix” evidence would be required necessitating a full trial. The court went over the usual rules of interpretation and held that the exclusion of liability clause did work to exclude the claimant's claims for loss of profits and wasted expenditure and granted reverse summary judgment as:
   • The language of the clause was clear and unambiguous, regardless of any potential imbalance in bargaining power between the parties;
   • The clause did not attempt to exclude all of the claimant’s substantive rights and remedies (the claimant could still bring a claim for the incurred costs);
   • Nothing in the reseller agreements or negotiations suggested that the parties intended for the word “breach” to be qualified or limited in scope - the claimant had argued that it could not cover the alleged repudiatory breach of the other party;
3. The defendant’s application for summary judgment for the unpaid invoices - was the set off clause enforceable? The court ruled that the ‘exclusion of set off’ clause was sufficiently worded to prohibit the claimant from relying on a defence of equitable set off (as opposed to contractual set off based on the contract language) in relation to the unpaid defendant invoices. The fact that the clause said payment "shall be made in full without deduction or set off, including in respect of taxes, charges, and other duties" was irrelevant, as this was clearly intended to be a non-exhaustive list of items which may not be set off against the fees.

Closing thoughts

This judgement is another recent case where limitations of liability have been upheld, both on construction of general language and through an unwillingness to find that UCTA applies. It also confirmed that the words "set off" in a clause of the type in play should generally be interpreted as covering both legal and equitable set off.