to Encia. Shepherd were developing a site for 94 homes on poor ground. Piling was needed to improve foundations and Encia, the civil engineering contractor, employed Green Piling to carry out the piling work.
Encia were a subsidiary of AIG Engineering Group, part of the American International Group of companies, one of the largest insurance groups in the world. Green Piling had an annual turnover of a little over £336,000 at the time. This contract value was £100,000 net, possibly rising to a maximum of £250,000 for the following phase.
Green Piling carried out works and after six months some properties showed signs of settlement. Shepherd sued Encia who In turn sued Green Piling. The potential liability was £10m, possibly more.
Are limitation and exclusion clauses likely to fail the reasonableness test?
The contract between Green Piling and Encia contained the following condition:
"4.3. Our maximum total liability is limited to the Contract Price; whether in contract or in tort, for any damage or loss whatsoever, including all direct or consequential loss."
The contract also required Green Piling to carry £1m insurance.
In that case the court, having considered UCTA, concluded that clause 4.3 was incorporated into the contract, it was not unreasonable, there was no inconsistency between the cap on liability imposed by clause 4.3 and the requirement to carry £1m insurance, and that Encia had superior bargaining power – they had other tenders to do the work (which also included limitations on liability), but chose Green Piling.
Therefore clause 4.3 limiting Green Pilings liability to Encia succeeded. Conclusion
Important factors in deciding whether limitation of liability clauses will be successful are:-
(i) how those clauses come to be incorporated in the contract;
(ii) the respective bargaining power of the parties; and
(iii) the objective reasonableness of the clause itself.
In considering whether to limit your liability you may be better off setting a reasonable limit on your liability and specifying precisely the type of loss you are prepared to accept rather than trying to exclude your liability altogether.
Footnotes
1. Pegler v Wang [2000] BLR 218 2. [2010] EWHC 720 (TCC) 3. S.2(2) UCTA and S.3(2) UCTA 4. S.2(1) UCTA 5. [2015] EWHC B7 (TCC) 6. Sale of Goods Act 1979 S.14 7. [2007] BLR 135