Unreasonable warranty time periods in ICT or outsourcing contracts
Byon January 30, 2012
A recent court case highlights that warranties for work performed in ICT or outsourcing contracts must be reasonable in terms of the time they apply.
In the J Murphy & Sons Limited v Johnson Precast Limited case, Clause 14(i) was a warranty of good workmanship, materials and compliance with standards. Clause 14(ii) was different and was described by the judge as being ‘draconian in its effect’. It read as follows:
‘In the event that the goods or any part thereof are found to be defective owing to faulty workmanship or materials and not arising from the Customer’s default, neglect, mishandling or misuse, but not limited to any deviation from catalogues or recommended operating instructions applied by the Company for use with the goods, the Company will, at its option, refund the price paid for or replace or repair any goods forming the whole or any part of the goods supplied provided always that the Company is notified in writing within 7 days of the discovery of such defects and in the event not later than 28 days from the date of delivery.’
The judge objected to the proviso as it meant that 29 days after the date of the services being delivered, no claim could be made, no matter how defective the service. Even aside from the very limited timeframe, this did not take into account the fact that the service would not be commissioned immediately and so there would be even less time from the project commencement in which the warranty period operated. Reducing a six-year limitation period to 28 days was ‘plainly and obviously unfair and unreasonable’. It did not comply with UCTA (the Unfair Contract Terms Act) requirements of reasonableness and so would be struck out.
Exclusion of liability
Mr Justice Coulson also split up the liability clause to allow for any offending bits to be severed. Under the judge’s numbering system, Clause 15(ii) said:
‘Save as otherwise expressly provided in Clause 14 the Company shall not in any circumstances be under any liability whatsoever to the Customer whether in contract, tort or otherwise for any defect in, failure of or unsuitability for any purpose of the goods or for any loss (including but not limited to consequential loss, loss of profit, loss of goodwill or similar financial loss), damage, claim or any other liability howsoever or whensoever caused whether or not due to the negligence or default of the Company or its servants or agents or to faulty design, specification, workmanship or materials.’
This was deemed unreasonably wide and also fell foul of UCTA. It is thought the Judge may have perceived the scope to be unusually narrow, and that simply offering money back for a service that was a component of a much larger project was simply not enough as the consequential impact of bad advice was significantly greater than the cost of the service delivered. Either way, the whole of Clause 15 (ii) was dealt with in one long paragraph and it was all struck out.
Service providers must be careful with imposing unreasonable time-limits, as they could turn what was an otherwise reasonable term of a project contract into one that is unenforceable.