Stewart Gill Ltd v Horatio Myer and Co Ltd
Court of Appeal
Citations:  QB 600;  2 WLR 721;  2 All ER 257; (1991) 11 Tr LR 86; (1992) 142 NLJ 241;  CLY 510.
The claimant agreed to install and test an overhead conveyor system on the defendant’s premises. The defendant was to pay 15% of the price on making the order and the remainder in instalments. Clause 12.4 of the contract stated that the defendant could not withhold any of these payments by reason of any set-off, payment or credit due to them, or for any other reason.
The defendant refused to pay the final 10%, so the claimant brought an action for this sum. The defendant relied on a set-off, and argued that clause 12.4 was void under either s.3 or s.13 of the Unfair Contract Terms Act 1977. The claimant applied for summary judgment, requiring the defendant to prove that they had a reasonable prospect of successfully establishing their defence.
- Could the clause be void under s.3 of UCTA 1977?
- Could the clause be void under s.13 of UCTA 1977?
The court held in favour of the defendant. Clause 12.4 could not be void under s.3, because it was not an exclusion or limitation clause. However, it could be void under s.13, which applies to a broader range of terms. Clause 12.4 restricted the defendant’s right to rely on a set-off, and so fell within the scope of s.13. Taken as a whole, the clause was unreasonable and so unenforceable.
This Case is Authority For…
Section 3 of UCTA applies only to terms excluding or restricting liability or those which entitle the party concerned to render no contractual performance or a performance which is substantially different from that reasonably expected of him.
Section 13 extends the scope of section 3. It applies to any standard form contract term excluding or restricting any right or remedy in respect of any liability which might be excluded or restricted under s.3. It is not limited to exclusion and limitation clauses.
The burden is on the party relying on a clause to prove that it meets UCTA’s requirements of reasonableness. That party must show that the entire clause is reasonable, not just the part which barred the defendant’s particular claim.
Stuart-Smith LJ explained that s.11(2) requires the court to have regard to the factors listed in Schedule 2 of the Act when determining reasonableness under sections 6 and 7. However, the judge also thought that those factors ‘are usually regarded as being of general application to the question of reasonableness.’ The court may therefore take them into account when applying other provisions, such as sections 3 and 13.
Lord Donaldson of Lymington noted that the reasonableness of a clause restricting a right of set-off under UCTA 1977 should usually be decided in a summary judgment application or at a preliminary hearing: it should not be left to trial. Otherwise, the right of set-off would essentially be ineffective even if the clause is found unreasonable. He also thought that a clause completely excluding a party’s right of set-off was prima facie unreasonable.