Battle of the forms and exclusion clauses – be reasonable!
08 / 12 / 2016
Commercial Management (Investment) Ltd v Mitchell Design & Construct Ltd & Anor  EWHC 76 (TCC)
Subcontracts: offer and acceptance and reasonableness
This case highlighted the importance of clarity in agreeing the terms upon which subcontracts are made and demonstrated how an exclusion clause can fall foul of the Unfair Contract Terms Act 1977 (“UCTA”) even where both parties were commercial entities and not dealing as consumers.
The contractor, Mitchell, invited the subcontractor, Regorco (formerly Roger Bullivant), to tender for groundwork. Following a lengthy contract negotiation (during which the works were completed) Mitchell sent Regorco a purchase order based upon their standard terms of business. Regorco amended the terms and conditions and counter-signed the purchase order. The Court decided, in keeping with the longstanding legal principle of the ‘battle of the forms’, that Regorco had ‘fired the last shot’ and so Mitchell’s standard terms applied but only as amended by Regorco. The point at which the contract was formed was when Regorco signed and returned the amended purchase order, which constituted a counter-offer made by Regorco and accepted (in the absence of any further counter-offer) by Mitchell.
The offending clause in this case was a time bar clause in Regorco’s standard terms, whereby all claims under or in connection with the subcontract had to be notified to Regorco in writing within 28 days of the appearance of any alleged defect and would in any event be deemed to be waived and absolutely barred unless so notified within one calendar year of the date of completion of the works.
Mitchell’s standard terms contained a clause under which Regorco had to indemnify Mitchell for death, injury to person or loss of or damage to property arising out of the performance of the subcontract.
The judge came to two conclusions in relation to these clauses:
- Regorco amended and countersigned Mitchell’s standard terms after completion of the work and the consequence of Regorco’s amendment to Mitchell’s terms was that Mitchell’s clause overrode Regorco’s. The time bar clause applied to “all claims” which were already covered by Mitchell’s indemnity clause.
- If the judge was wrong on that point, Regorco’s time bar clause was unreasonable under Section 3 of UCTA. The judge had no problem finding that both parties were dealing on the other’s written terms of business and that the time bar clause in question was not reasonable, particularly given that most groundworks claims do not manifest themselves for a considerable period of time after the event.
This case was a hearing of preliminary issues. The decision does not bode well for the subcontractor when the case comes to trial: it will have to indemnify both Mitchell and Commercial Management (Investments) Limited (who had the benefit of a collateral warranty) for any damage to property (which is presumably the loss being claimed).
- Take time and care in agreeing the terms of subcontracts before works have been carried out.
- If relying upon or responding to standard terms of business take care to read and identify the standard terms carefully. The judge made particular reference to the small font size of both parties’ standard terms and so be wary of relying upon the other party missing or not reading their terms.
- If you have onerous exclusions and limitations in your standard terms, beware of them falling foul of UCTA, even if contracting with another business.