Regus (UK) Ltd v Epcot Solutions Ltd
Court of Appeal
Citations:  EWCA Civ 361.
Regus was a large company providing serviced office accommodation. Epcot was a small company which provided IT training and occupied space in one of Regus’ buildings. Epcot had to leave the first building after Regus closed the location, and were moved to a new location. This led to Epcot incurring costs, such as the need to print brochures with their new address. Meanwhile, the air-conditioning at the new location was inadequate. This made the staff uncomfortably hot and, in some cases, ill.
Epcot began refusing to pay Regus fees on the grounds that their services were inadequate. Regus responded by issuing a notice suspending its services. Epcot then relocated to one of Regus’ competitors and sued for breach of contract. They alleged that they had suffered damages totalling £626 million.
Regus relied on an exclusion clause in its standard terms as barring any remedy on these facts. The opening sentences limited Regus’ liability to negligence or deliberate acts. As Regus was negligent, these did not cause Epcot any problems. The rest of clause worked in the following manner:
- What the judge referred to as subsection (3) excluded liability for ‘loss of business, loss of profits, loss of anticipated savings, loss of or damage to data, third party claims or any consequential loss.’ It advised Epcot to insure against these losses.
- What the judge referred to as subsection (4) limited Regus’ liability to £1 million for personal property damage and the higher of £50,000 or 125% of the total fees Epcot paid for all other losses.
Epcot contended that the clause, particularly subsection 3, was void for unreasonableness under section 3 of the Unfair Contract Terms Act 1977.
- Was the exclusion clause void for unreasonableness?
The court concluded that the clause was reasonable. The following factors affected their reasoning:
- Contrary to Epcot’s submission, subsection 3 did not exclude all possible remedies for breach of contract. The primary measure of damages was still available. This was the difference between the value of the services which ought to have been received and the services which were rendered. Loss of profits and consequential losses are a separate matter, and the clause only excluded these.
- Subsection (3) should not be construed as excluding liability for deliberate acts. The mere fact that the opening sentences of the clause referred to deliberate and negligent acts did not mean that subsection (3) was attempting to exclude liability for deliberate acts. The clause was therefore not as broad as Epcot made out
- Epcot’s representative, who contracted on Epcot’s behalf, was an ‘intelligent and experienced businessman’. He was aware of the standard terms. He had also sought to renegotiate several of the terms, but did not question the exclusion clause.
- Epcot had used similar clauses in their own contracts in the past.
- Despite the size difference between the parties, there was no inequality of bargaining power. Epcot had easy access to Regus’ competitors, and used this to their advantage in negotiations. They had a real choice when it came to accepting the exclusion clause.
- It likely would have been easier for Epcot to insure against their own consequential losses than for Regus to insure against their client’s losses. Epcot was in a better position to estimate those losses, a necessary part of acquiring such insurance.
This Case is Authority For…
The courts will not naturally construe contract clauses as excluding damage for dishonest, wilful or fraudulent acts.
On appeal, Epcot conceded that if subsection (3) was unreasonable, it could be severed from the overall clause without rendering the entire clause invalid. This meant that even if subsection (3) had been found void, the claim would still have been limited by subsection (4). Epcot did not challenge the validity of subsection (4).
The court stated that they were correct to make this concession. This was because the two parts of the clause were ‘independent’ from each other (even though they were not labelled as separate subsections in the contract itself).
Rix LJ noted that the factors concerning reasonableness in Schedule 2 of UCTA are treated as being of ‘general application’, even though the statute only explicitly links them to sections 6 and 7 of UCTA.