Don’t walk the wire: a final verdict on implied terms

What was the case about?

The case involved the hire purchase by Last Bus Ltd (“Last Bus”) of coaches from Dawsongroup Bus and Coach Ltd (“Dawsongroup”). The relevant hire purchase agreements incorporated Dawsongroup’s standard terms and conditions. Those terms and conditions excluded, among other things, the statutory implied term as to quality. Last Bus was dissatisfied with the quality of the coaches it received and brought a claim for a breach of the statutory implied term as to quality under the Supply of Goods (Implied Terms) Act 1973.

In assessing whether the exclusion by Dawsongroup of the statutory implied term should stand, the High Court considered the requirement that such an exclusion pass the “reasonableness test” set out in the Unfair Contract Terms Act 1977 (“UCTA”). The judge ultimately deemed that both parties had equal bargaining power and, on that basis, the exclusion of the implied term met the standard of reasonableness required under UCTA. Last Bus appealed this decision.

Where did the High Court go wrong?

In concluding that Last Bus’s appeal should be allowed, the Court of Appeal determined that the High Court judge had asked the wrong question when examining the reasonableness of the exclusion. Rather than evaluating the parties’ bargaining power, it should have established whether the parties had equal weight considering the fact that Last Bus was contracting with Dawsongroup on its standard terms and conditions. The Court of Appeal deemed that Dawsongroup would have refused to contract with Last Bus without the exclusion clause being included in the agreement, and pointed to the circumstances of Last Bus, who had no choice of terms available to them within the market that would have substantially differed from those of Dawsongroup.

The Court of Appeal also concluded that the High Court Judge had failed to consider the effect of the term, in that the exclusions removed all remedies available to Last Bus, even if it had paid for the hire of the coaches and Dawsongroup did not supply them. Consequently, the exclusion was unreasonable pursuant to UCTA and therefore unenforceable.

Commentary

Understandably, suppliers of goods and services want to ensure that their terms and conditions offer as much protection as possible from potential liabilities and, in doing so, will seek to include exclusions. This case is a strong reminder to ensure that the bargaining positions of the parties and availability of alternative options on the market are borne in mind when using exclusion clauses to increase the likelihood of such clauses being reasonable and enforceable.

It is always wise to review your standard terms and conditions regularly to ensure continuing relevance and protection for your circumstances.

Contact the Corporate and Commercial team, who will be delighted to assist you if you need assistance with preparing or reviewing your terms and conditions.