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Contract disputes: the importance of incorporating terms and highlighting exclusion clauses

The recent case of Phoenix Interior Design Ltd v Henley Homes plc [2021] EWHC 1573 (QB) involved a number of complex legal issues, with particular attention paid to whether the supplier's terms and conditions were properly incorporated into the contract and if so, whether they could rely upon an exclusion clause in them.

The facts

Phoenix Interior Design Ltd ("the Claimant"), sought to bring a claim against Henley Homes plc ("the Defendant") for unpaid invoices, in respect of goods supplied and services rendered by the Claimant in the refurbishment of the Defendant's new apartment hotel in Scotland.

The Defendant, a property development group, had engaged the interior design services of the Claimant over the preceding 10 years. In this particular matter, the Defendant gave the Claimant an initial brief which stated that the hotel was intended to be 'high end' and the goods supplied were to be 'hard-wearing and contract quality which is easy to clean, maintain and replace but with a luxurious 5-star feel'.

The dispute

A dispute arose between the parties regarding the quality and acceptance of the goods supplied, with the Defendant arguing that the goods were defective and not five-star. The Defendant, therefore, alleged that 50% of the contract price, which was due on completion, never fell due as the Claimant's performance of the contract was so defective that practical completion never occurred. In the alternative, the Defendant alleged that it was entitled to special damages by way of compensation to cover the cost of replacing the goods supplied by the Claimant, with five-star equivalents.

The Claimant argued that whilst the goods were intended to give the hotel a five-star 'feel', they were not supposed to be five-star products, and in fact, the Defendant contradicted themselves by also wanting goods that were hard-wearing and easy to replace.

The Claimant also sought to defend the counterclaim by relying on their terms and conditions. Under the contract, the Claimant's warranty covered the conditions of goods supplied, however, this was subject to the following clause: "the [claimant] shall be under no liability under the above warranty (or any other warranty, condition or guarantee) if the total price of the goods has not been paid by the due date for payment".

The decision

The Judge held that there was no requirement for the Claimant to provide five-star products or that a five-star specification was a term of the contract. This was supported by the fact that the Defendant had inspected and approved the goods and materials supplied by the Claimant, and continued to use them.

Ultimately the Claimant had performed their obligations under the contract and the Claimant was, therefore, able to recover the majority of the outstanding invoices from the Defendant.

However, it was heavily discussed in the case as to whether (a) the Claimant's terms and conditions had been incorporated into the contract and (b) if so, whether the exclusion clause was reasonable under UCTA 1977.

Incorporation of terms and UCTA

The Judge held that the Claimant's terms and conditions were incorporated into the contract by reference, on the basis that:

• hard copies of the terms and conditions had been provided at the presentation in early 2015;
• the initial proposal referred to terms and conditions as being 'overleaf' and a set of those terms and conditions was attached separately to the email;
• whilst the initial proposal was not accepted by the defendant, the proposal which they did sign and accept was made on precisely the same basis;
• there was no attempt by the defendant to contract on their own terms and conditions; and
• there was a clear course of dealings between the parties over the preceding ten years which demonstrated that terms and conditions had been sent and accepted.

However, the exclusion clause was deemed unreasonable under UCTA as it was an "unusual" and "potentially exorbitant" clause tucked away in the terms, which had not been highlighted to the defendant. As a result, the Claimant would have been unable to rely upon it had they needed to.

It is, therefore, crucial to ensure that not only your terms and conditions are clearly and unequivocally incorporated into the contract, but that any limitation of the liability clause is visible and well highlighted to avoid any disputes or counterclaims.

For more information contact Claire Edbury in our Commercial Litigation department via email or phone on 0333 207 1143. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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