A paint dispensing company was sued by Benkert UK Limited following a fire which broke out at Benkert’s factory, causing £29.6 million of damage. Benkert alleged that two paint dispensing machines supplied by Paint Dispensing Limited (PDL) were responsible for the fire breaking out, and that the machines had not been properly maintained by PDL.
PDL resisted the claim and as part of their defence relied on a term in their annual maintenance contract which stated that their liability was limited to their annual charge – in this case £3,225.
A central issue to the case which went before the Scottish Court of Sessions was therefore whether the limitation clause in the contract was a fair exclusion of PDL’s liability or alternatively, whether it was an unfair contract term which should not be enforced.
Disputes over the meaning and enforceability of limitation clauses regularly occur and have led to a number of recent court cases. Some of these decisions have seen limitation clauses fail because they were considered unreasonable or due to the clauses not being prominent in the contract and therefore difficult to identify amongst other more routine terms.
PDL’s limitation clause was clearly signposted in its maintenance contract however. There was a statement in capital letters “THE CUSTOMER’S ATTENTION IS SPECIFICALLY DRAWN TO THE PROVISIONS SET OUT BELOW”. Also telling was that the contract itself was not long, comprising only six pages of normally sized text.
The decision considered various factors which the courts assess when deciding the fairness of a particular limitation clause. These include whether the other party ought reasonably to have known about the limitation clause, whether the parties to the contract had similar bargaining power, the value of the limit placed on liability and the financial resources of the limiting party. In the present case the judge concluded that PDL’s situation and contract had satisfied these considerations.
The court therefore upheld the clause and that PDL’s liability should be limited to £3,225.
James Burgoyne of specialist professional indemnity insurance broker Brunel Professions said: “Limiting liability can offer professional firms significant financial protection if they are subsequently caught up in a problematic situation and particularly if they are the only solvent target for the claimant.
The PDL case provides a good example of how to get a limitation clause right, which is all the more striking for the amounts involved.”