Scottish appeal court rejects UCTA challenge under maintenance contract

United KingdomScotland

In a decision earlier this month, Scotland’s highest court has rejected a challenge under the Unfair Contract Terms Act to a limitation of liability clause in a maintenance contract. Aligning itself with the English Court of Appeal’s decision in the Goodlife Foods case, the court confirmed that a robust approach to UCTA challenges in commercial cases also applies in Scotland. The court’s decision also demonstrates that insurability remains one of the most important factors in determining the reasonableness of an exclusion or limitation clause under UCTA.

Benkert UK Ltd v Paint Dispensing Limited

Paint Dispensing was engaged to service two ink dispensing machines at Benkert’s printing factory on a biannual basis. A fire was caused by a clip detaching from a hose which supplied solvent to the machines. The lost clip allowed solvent vapour to leak, which then ignited. Benkert suffered a total loss of just under £30 million and its insurers brought a subrogated claim against Paint Dispensing in the Scottish Court of Session. At first instance, the Outer House found Paint Dispensing liable for the fire and Benkert’s losses, however the maintenance contract was based on Paint Dispensing’s standard terms and contained the following limitation clause:


5.3.1 the Company’s total liability in contract, tort, misrepresentation or otherwise arising in connection with the performance or contemplated performance of the Services shall be limited to the Basic Charge; and

5.3.2 the Company shall not be liable to the Customer for any indirect or consequential loss or damage (whether for loss of profit, loss of business or otherwise), costs, expenses or other claims for consequential compensation whatsoever and how so ever caused which arise out of or in connection with this Agreement.”

The result of this clause was to limit Paint Dispensing’s liability to £3225.06, approximately 0.01% of Benkert’s loss. Benkert appealed to the Inner House arguing that the limitation clause was ineffective because it failed to satisfy the reasonableness requirement under the Unfair Contract Terms Act 1977 (“UCTA”). That requirement applies to commercial contracts in England and Scotland where, among other things, an exclusion or limitation clause is based on one party’s standard terms and conditions.

Limitation Upheld

Benkert argued that the limitation clause did not meet the reasonableness test in section 24 UCTA because, among other things:

  1. The bargaining position of the parties was not equal as Benkert was not aware of the risks involved with negligent maintenance of the machines.
  2. Paint Dispensing had repeatedly provided proof of their £5 million public liability insurance cover to Benkert, which was inconsistent with a belief that the limitation clause was effective. That level of that cover also made it unreasonable to limit liability to just over £3000.
  3. The very small limit of liability undermined Paint Dispensing’s primary obligation to use reasonable care to maintain the machines.

Benkert also contended that the first instance judge had failed to take into consideration how far it was open to Paint Dispensing to cover themselves by insurance as per section 24(3)(b) of UCTA.

Although allowing a cross-appeal on liability, the Inner House rejected Benkert’s arguments in relation to the limitation clause. The court noted that regard should be given to the size, scale and resources of the parties as these impact their respective bargaining powers. Benkert had sufficient bargaining strength to negotiate. Benkert were held to have been aware of the terms and it was significant that they made no attempt to negotiate.

The Inner House indicated its agreement with comments in an earlier English Court of Appeal decision (Goodlife Foods v Hall Fire Protection), noting that the court “should be reluctant to interfere with a bargain made by a commercial party” and “should not lightly make a finding that a large commercial concern with access to legal and contractual expertise entered into an unreasonable agreement or agreed terms in a contract that were not fair and reasonable”. For our Law-Now on the Goodlife decision please click here.

The court noted that section 24(3)(b) was not limited to considerations of whether insurance was available. It also took into account the commercial realities associated with obtaining such insurance. If doing so would result in a material price increase for the customer, that would be relevant to whether it was open to a party to insure against a risk. Benkert were better placed than Paint Dispensing to estimate their potential losses and to insure against those. Benkert had, in fact, been indemnified by their insurers in respect of the losses and the proceedings were brought by their insurers by way of subrogation. By contrast, to expect Paint Dispensing, “to obtain insurance sufficient to cover very substantial losses sustained by each of their customers, the nature and extent of which they were in no position to estimate, would be entirely unrealistic.” The fact that Paint Dispensing held public liability insurance at a much higher level than their limit of liability was not relevant to the reasonableness of the limitation clause.

Conclusions and implications

This is a significant appeal decision which supports the robust approach to UCTA taken by the English Court of Appeal in Goodlife. It also confirms that Scotland and the rest of the UK are aligned on their interpretation of UCTA. As in Goodlife, the respective bargaining power of the parties and the ease with which the parties could obtain insurance are key factors. Parties providing products or services which may give rise to losses which are identifiable and insurable by their customers can take comfort that limitation and exclusion clauses in commercial contracts are likely to be defendable.

The approach taken in this case and in Goodlife may also prompt insurance companies to exert greater control over the limitation provisions agreed to by their clients, particularly in relation to the provision of goods or services with safety aspects. To the extent this takes the form of mandatory conditions of insurance, insureds will need to make sure that limitation clauses such as those considered in this case are given much closer scrutiny.


Benkert UK Ltd v Paint Dispensing Ltd [2022] CSIH 55

Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371