England: Brands Bulletin
Limiting and excluding liability for your brands
If, as a brand owner, goods/services are sold/supplied by you under your brand in the United Kingdom then you will be subject to various legal obligations and duties relating to the quality and safety of those goods/services. By way of illustration:
If the goods are sold by you in the course of business then, subject to certain exemptions and pursuant to the Sale of Goods Act 1979, it will be an implied term that the goods are of satisfactory quality and reasonably fit for any purpose expressly or implicitly made known to you by your customer (whether or not it is a purpose for which those goods are commonly supplied);
If you sell goods then you will owe a duty to exercise reasonable care so as to make sure that the goods are safe (i.e. you must avoid being 'negligent');
Subject to certain exemptions, you will be liable under the Consumer Protection Act 1987 if you produce goods that are defective (i.e. the safety of the goods is not such as persons generally are entitled to expect) and such goods give rise to death or personal injury or any loss of or damage to any property; and
- If services are provided by you in the course of business then (subject to certain exemptions), pursuant to the Supply of Goods and Services Act 1982, it will be an implied term that the services must be carried out with reasonable care and skill.
Many brand owners ask us whether and how they can exclude, or at least limit, their liability. There is no 'one size fits all' answer to that question, although we have endeavoured in this bulletin to consider some of the ways in which a brand owner may try seek to protect itself.
Excluding terms implied by statute
Sometimes, but not always, it is possible to exclude terms implied by a particular statute.
For example, the Unfair Contract Terms Act 1977 states that, as against a person dealing as a consumer, a business cannot exclude or restrict its liability for breach of the implied terms that goods are of satisfactory quality and reasonably fit for any purpose expressly or implicitly made known to the seller, whereas as against a person dealing otherwise as a consumer such liability can be excluded or restricted by reference to a contract term if it satisfies the requirement of 'reasonableness' (i.e. the term was a fair and reasonable one to be included, having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made).
Excluding/restricting liability for negligence and breach of contract
The Unfair Contract Terms Act 1977 ("UCTA") states that a business can never exclude or restrict its liability for death or personal injury resulting from negligence. However, it states that a business can exclude or restrict liability for any other kind of damage or loss resulting from negligence, subject to it being 'reasonable' to do so. The definition of 'reasonableness' is the same as the one mentioned above.
UCTA also provides that in contracts where one of the parties deals as a consumer or on the other's standard written terms of business, as against that party, the other party cannot exclude or restrict its liability when it is in breach of a term of the contract, or be entitled to render a contractual performance which is substantially different from that which was reasonably expected or render no performance at all, unless the contract term satisfies the requirement of 'reasonableness'.
The Unfair Terms in Consumer Contracts Regulations 1999 ("UTCCRs") also contain a general provision that may limit the extent to which you can exclude/limit your liability when dealing with consumers. The UTCCRs provide that any contractual term which has not been individually negotiated will be unfair (and not binding on the consumer) if it causes a significant imbalance in the parties' rights and obligations, to the detriment of the customer.
Tips and Tactics
Where it is possible for a business to include a clause in a contract that excludes or limits its liability, often the clause will not work unless is satisfies the 'reasonableness' test. As a consequence, it is often best to draft an exclusion/restriction of liability clause on a 'tiered' basis.
Thus, you might start with a sub-clause that attempts to exclude certain implied terms, liabilities and losses (e.g. loss of profits) to the extent that the law allows you to do so (e.g. in a business-to-business sale, you can exclude the implied term that goods are of satisfactory quality and reasonably fit for any purpose expressly or implicitly made known to the seller, provided it is 'reasonable' to do so). Then, you might include a sub-clause that (to the extent the law permits) limits all claims, or certain types of claims, to a fixed sum of money, which should be a 'reasonable' sum. The idea is that if the first sub-clause fails to exclude the implied term, liability or loss, then the second sub-clause (provided it is 'reasonable') will hopefully cap liability at a fixed sum.
In this context, what is 'reasonable' would typically include consideration of some or all of the following:
The resources which the business would expect to have available for meeting that liability, should it arise;
How far it was open to the business to obtain insurance cover;
The strength of the bargaining positions of the parties relative to each other, taking into account (among other things) alternative means by which the customer's requirements could have been met;
Whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons, but without having to accept a similar term;
Whether the customer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties);
Where the term excludes or restricts any relevant liability if some condition is not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable; and
- Whether the goods were manufactured, processed or adapted to the special order of the customer.
What is 'reasonable' in one factual scenario and one contract may not be in another. Thus, bespoke drafting of these types of clauses is necessary, if they are to have the best chance of withstanding a legal challenge.
Rather than limiting liability to a single fixed sum, you might allocate different fixed sums of money to particular types of claim or loss. For example, you might include a sub-clause setting your liability for a failure to deliver goods or services to a customer at one value, and include another sub-clause setting your liability for delivering defective goods to a business customer at another value. Both those values need to 'reasonable'.
Another approach would be to provide for specific and exclusive remedies in the event that a particular liability arises. For example, in the case of the supply of a defective product that does not cause death or personal injury, you might include a clause in your contract with a business customer stating that the customer's only remedies will be a refund of the price, repair of the product, or the supply of a replacement. Again, these remedies would need to be 'reasonable'.
It is never the case that you can state in a contract that you accept no liability whatsoever for goods and services sold by you under your brand, and be confident that such a clause would be upheld by the Courts. However, the law sometimes permits brand owners to exclude/limit their liability, but usually only where it is considered 'reasonable' to allow them to do so. What is reasonable will depend on the circumstances of the individual case, but a good starting point is to ask yourself the basic question: "In the circumstances of this particular contractual arrangement, does this seem fair?"
If you wish to discuss this email, or any other brand or trade mark issue, please contact Carl Steele, Head of Trade Marks, or feel free to contact any of Ashfords' IP partners.
T: +44 (0)1392 333951
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