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KembaraXtra- Case Law- Edmund Murray Ltd v BSP International Foundations Ltd (1992) CA
This case examines the enforceability of an exclusion clause within a contract for the sale of a drilling rig. BSP, the sole UK manufacturer, supplied a faulty rig to EML, relying on a clause excluding liability except for death or personal injury due to their negligence, after the six-month guarantee period had expired. The Court of Appeal found the exclusion clause unfair and unenforceable.
I. Key Facts:
The Court of Appeal held that the exclusion clause was unfair and unreasonable, therefore unenforceable, under the Unfair Contract Terms Act 1977. Their reasoning centered on several points:
(a) Reintroduction of the Doctrine of Fundamental Breach? The court’s decision doesn'
This case examines the enforceability of an exclusion clause within a contract for the sale of a drilling rig. BSP, the sole UK manufacturer, supplied a faulty rig to EML, relying on a clause excluding liability except for death or personal injury due to their negligence, after the six-month guarantee period had expired. The Court of Appeal found the exclusion clause unfair and unenforceable.
I. Key Facts:
- Parties: Edmund Murray Ltd (EML) – pile driving contractor; BSP International Foundations Ltd (BSP) – manufacturer of pile driving equipment.
- Contract: Supply of a drilling rig with specific specifications for £45,000 (less 10% discount).
- Exclusion Clause (Condition 12.5): BSP's standard terms included a six-month guarantee, explicitly excluding all other liabilities and warranties, except for death or personal injury resulting from BSP's proven negligence.
- Dispute: The rig malfunctioned; EML sued for damages after negotiations failed. BSP relied on the exclusion clause to deny liability.
The Court of Appeal held that the exclusion clause was unfair and unreasonable, therefore unenforceable, under the Unfair Contract Terms Act 1977. Their reasoning centered on several points:
- Failure to Meet Specifications: The court emphasized that the clause was unreasonable because it allowed BSP to avoid liability for failing to meet the specific specifications requested by EML. This was deemed a fundamental breach of contract. The court used a hypothetical "bystander test" (Neill LJ): If a bystander had explained that EML would have no remedy if the rig didn't meet specifications, both parties would have likely rejected the contract.
- Equal Bargaining Power Irrelevant: Despite EML knowing the terms and both parties possessing relatively equal bargaining power, the court still found the clause unfair due to its substantive effect. The core issue was the failure to deliver a product meeting the agreed-upon specifications.
- Circumstances Known to Both Parties: The court clarified (s.11(1) of the UCTA) that "circumstances…known to…the parties" refers to circumstances known to both parties, not just one. This refutes any argument BSP might make that EML should have foreseen the potential lack of remedy.
- Potential for Severance: The court explored the possibility of severing the unreasonable parts of the exclusion clause to leave a reasonable remainder – suggesting this might be possible in some situations, but not applied in this case.
- Ralph Gibson LJ's Suggestion: He suggested that BSP could have avoided the unfairness by explicitly stating in the contract that the specifications had no contractual effect. This underscores the critical importance of clear and unambiguous contractual language.
(a) Reintroduction of the Doctrine of Fundamental Breach? The court’s decision doesn'
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