Legal Updates

Commercial Law – Unfair Contract Terms – Accommodation for a Business

The case of Regus (UK) Ltd v Epcot Solutions Ltd [2007] highlighted the use of unfair terms in a commercial contract. The claimant in the case was a British company which was part of a large group of companies supplying serviced office accommodation in 50 countries. The defendant was a small company providing professional IT training which intended to develop a franchise in the field. The defendant company decided to use one of the claimant's locations at Heathrow.

Accommodation by the defendant company was taken on a day to day basis in 2001. In August of that year, the parties signed an agreement which was to last for 12 months. In August 2002, the defendant renewed the agreement for a further 12 months. However, in November 2002 the defendants were told that the Heathrow location was due to close in February 2003.

The claimant's terms and conditions in the agreement committed it to try to find alternative accommodation for the defendant. It offered the defendant alternative accommodation about three miles away. In addition to this, the claimant also offered to provide the necessary support for the moving of equipment, as well as a service to inform clients of the new location. The claimant also offered to maintain the same price for the remainder of the term.

The defendant accepted the new accommodation and, in March 2003, signed a new agreement for three and a half months. The agreement was on the claimant's standard form at the time. Clause 23 of the agreement purported to exclude liability for any loss unless the failure relied upon was deliberate or negligent, and even then there was no liability:

'… For any failure unless you have told us about it and given us a reasonable time to put right ...'

  It further provided that the claimant would not:

'… In any circumstances have any liability for any loss of business, loss of profits, loss of anticipated savings, loss of or damage to data, third party claims or any consequential loss. We strongly advise you to insure against all such potential loss ...’

Towards the end of March 2003, the defendant raised points about the air conditioning at the new accommodation. In November 2003, the agreement was extended for another 22 months. No additional complaints about the air conditioning were made until May 2004, at which point a series of correspondence ensued.

In October 2004, the defendant received a 'notice of suspension of services' followed by a second such notice and finally an e-mail stating that the defendant could not access its office after the 8th of October 2004. The claimant issued proceedings seeking sums due for office services for the period up to the 8th of October, when the services were suspended, together with £23,385.46 being the standard fee for the period to the end of October 2005. October 2005 would have been when the renewed agreement would have expired.

The defendant counterclaimed for mis-representation under the contract, as well as breach of contract over the allegedly defective air conditioning. The initial hearing was concerned with aspects of liability. The issues to be considered by the court included whether the air conditioning had been defective and therefore in breach of contract, and whether the claimant's terms of its standard form contract (in particular clause 23) breached the Unfair Contract Terms Act 1977.

The court ruled as follows:

• It was entirely reasonable for the claimant to restrict damages for loss of profits and consequential loses from their potential liability. However, it could not satisfy the burden of reasonableness when the clause deprived the defendant of any remedy at all for failure to provide a basic service like air conditioning in what was the business equivalent of a hotel, not the lease of a flat. Such a broad exclusion under the contract was deemed not reasonable when one applied the factors identified by the 1977 Act. As it was not open to the court to sever a clause which failed to meet the requirements of the Act, clause 23 was therefore of no effect.
• On the facts of the case, the air conditioning had been defective, making the room much too hot in the summer months. The inadequate air conditioning had been a significant, but not a real threat to the defendant's business. The court held that if it had been, the complaints would undoubtedly have been reduced to writing. The failure to supply proper air conditioning was, however, negligent on the claimant’s behalf. The court decided that such failure was significant but not crucial as the failures had only interfered with the efficient conduct of business, but had not prevented it. Therefore, the court held that the appropriate measure of damage would be some percentage deduction from the fees paid unless the defendant could show additional specific loss attributable to the failure of the air conditioning.

Please contact us for more information on assessing damages due under termination of a contract at [email protected]

Visit http://www.rtcoopers.com/practice_corporatecommercial.php

© RT COOPERS, 2007. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.