Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317

The reasonableness of a limitation clause in respect of computer software

Facts

The claimant was a family owned business involved in the sale, largely through mail order, of computer equipment. When the claimant company moved to larger premises, it required an integrated software system to deal with its orders. It discussed its requirements with the defendant and entered into a contract for the supply of a system, which after installation failed to perform adequately. The contract between the parties contained a clause stating that the entirety of the contract was included within the contract documents and that the parties agreed that no statements or representations by the parties had been relied upon when entering into the contract. The clamant claimed in respect of the failure of the software system. It was held that the limitation clause was entirely invalid for unreasonableness. The defendant appealed.

Issue

The issue in this circumstance was whether a clause which purports that pre-contractual discussions, which may have set out the purpose and scope of the contract, could be excluded from any considerations of liability in a general sense.

Held

It was held that the trial judge had erred in three respects. Firstly, he had failed to identify the full scope of the clause because it did not purport to completely exclude any pre-contractual considerations; it did not seek to exclude liability for misrepresentation. Secondly, the trial judge failed to recognise a clause in an agenda to the contract which required the defendant to take all reasonable steps to minimise the claimant’s losses as an additional obligation outside the scope of the limitation clause. Thirdly, the trial judge wrongly treated the claimant’s standard terms of business as irrelevant in respect of the commercial considerations which would lead to the inclusion of a limitation clause. Therefore, the appeal was allowed.