## Facts

- Watford Electronics Ltd, a family-owned mail-order supplier of computer equipment, contracted with Sanderson CFL Ltd for an integrated software system.
- After installation, the software did not perform as required.
- The contract included an entire agreement clause stating no reliance on pre-contractual statements or representations.
- Watford Electronics brought a claim for the system’s failure.
- The trial judge ruled the contract’s limitation clause invalid due to unreasonableness.
- Sanderson CFL Ltd appealed to the Court of Appeal.

## Issues

1. Whether the limitation clause effectively excluded or limited liability, especially concerning pre-contractual discussions and representations, in light of commercial context.
2. Whether the limitation clause was reasonable under section 11(1) of the Unfair Contract Terms Act 1977, considering statutory provisions from the Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982.

## Decision

- The Court of Appeal found the judge had erred in assessing the scope of the limitation clause.
- The limitation clause did not exclude all pre-contractual elements or liability for misrepresentation.
- The existence of a contractual duty for the defendant to mitigate losses was a separate obligation not excluded by the clause.
- The claimant’s standard business terms and the commercial setting of the contract were relevant to the clause’s reasonableness.
- The appeal was allowed; the limitation clause was deemed reasonable and enforceable in this context.

## Legal Principles

- Implied terms under the Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982 require goods to match their description and be fit for purpose, creating strict liability.
- Exclusion or limitation clauses must be incorporated into a contract, be precisely worded, and not misrepresented; ambiguities are interpreted against the party seeking to rely on them (_contra proferentem_ rule).
- Exclusion clauses in B2B contracts are valid only if reasonable under the Unfair Contract Terms Act 1977, with the burden on the party relying on the clause to prove reasonableness.
- The courts consider bargaining power, opportunity to negotiate, available alternatives, the existence of separate obligations, and the overall contractual context in assessing reasonableness.
- Entire agreement clauses do not preclude liability for misrepresentation unless expressly stated.

## Conclusion

The Court of Appeal held the limitation clause in the Watford Electronics contract reasonable and enforceable, emphasizing that exclusion clauses in B2B contracts must be assessed in their full contractual and statutory context to ensure fairness and clarity in risk allocation.

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