Phillips Products Ltd v Hyland [1984] EWCA Civ 5 (14 December 1984)

Phillips hired a digger and driver from Hyland under a contract making the driver Phillips's own employee. The driver negligently caused damage. The court held this liability transfer clause was unreasonable under the Unfair Contract Terms Act 1977, keeping liability with Hyland.

Facts

The first plaintiffs, Phillips Products Ltd (‘Phillips’), hired a JCB excavator and a driver for a short-term task. The contract of hire was made with the first defendants, J.P. Hyland, who obtained the machine and driver from the second defendants, A.S.K. Plant Ltd (‘ASK’). The driver, Mr Thomas, was an employee of ASK. During the work, Mr Thomas negligently drove the excavator into a wall of Phillips’s factory, causing damage. The contract for the hire was made on ASK’s standard terms of business, which included Condition 8. This clause stated that the driver supplied with the plant was to be considered the servant of the hirer (Phillips), who would be solely responsible for all claims arising from the operation of the plant. Phillips sued for the damage caused. The trial judge found in favour of Phillips, holding that Condition 8 was subject to the Unfair Contract Terms Act 1977 and was unreasonable. ASK appealed to the Court of Appeal.

Issues

The Court of Appeal considered two primary legal issues:

1. Did Condition 8 fall within the scope of the Unfair Contract Terms Act 1977 (‘UCTA’), specifically as a term purporting to exclude or restrict liability for negligence?
2. If so, was Condition 8 a reasonable term to include in the contract under section 11 of UCTA?

Judgment

The Court of Appeal unanimously dismissed the appeal, upholding the trial judge’s decision. Lord Justice Slade delivered the leading judgment.

The Effect of Condition 8 and UCTA 1977

At common law, without Condition 8, the court affirmed that the driver would have remained the servant of his general employer, ASK, as Phillips exercised no detailed control over how he operated the machinery. Thus, ASK would have been vicariously liable for his negligence.

The appellants (ASK) argued that Condition 8 did not exclude or restrict liability, but rather defined whose liability it was in the first place by ‘deeming’ the driver to be the servant of the hirer. They contended it therefore fell outside the scope of UCTA 1977. The court rejected this narrow interpretation, looking instead at the effect of the clause. Lord Justice Slade held that the clause was caught by UCTA, stating:

In my judgment, however, this argument pays insufficient regard to the wide wording of section 13(1) of the 1977 Act, which has to be read in conjunction with sections 2 and 7. Section 13(1), so far as material, provides: “To the extent that this Part of this Act prevents the exclusion or restriction of any liability, it also prevents…(a) making the liability or its enforcement subject to restrictive or onerous conditions…”

The court concluded that by transferring responsibility to the hirer, Condition 8 had the effect of excluding ASK’s liability for its employee’s negligence, bringing it within section 2(2) of UCTA. Therefore, the clause was unenforceable unless it satisfied the requirement of reasonableness.

The Reasonableness Test

The court then applied the reasonableness test under section 11 of UCTA, considering the circumstances known to the parties when the contract was made. Several factors were weighed: a) the parties were of broadly equal bargaining power; b) the hire was for a very short period and arranged at short notice for an emergency; c) Phillips had no control over how the skilled driver performed his work; d) the clause was part of standard conditions and not specifically negotiated; and e) ASK was in a far better position to insure against the risk of its driver’s negligence. The court found the clause to be unreasonable. Lord Justice Slade concluded:

The plaintiffs had no control whatever over the way in which Mr. Thomas performed his task… In all the circumstances, particularly having regard to the fact that the hire was for a very short period on an emergency basis and that the plaintiffs had no opportunity to arrange their own insurance cover for the driver’s negligence, and that the defendants were in a very much better position than the plaintiffs both to assess and to procure insurance cover against the relevant risk, I think that a clause such as clause 8 was an unreasonable one to include in this contract.

Implications

The decision in Phillips v Hyland is significant for establishing that clauses which ‘deem’ an employee of one party to be the servant of another can be classified as exclusion clauses under UCTA 1977. It confirms that courts will look to the substance and effect of a term, not merely its wording. The case serves as a key authority in contract law and the law of tort, particularly in the context of plant hire agreements, by limiting the effectiveness of standard conditions that attempt to transfer liability for negligence without regard to the practical realities of control and insurance.

Verdict: The appeal was dismissed.

Source: Phillips Products Ltd v Hyland [1984] EWCA Civ 5 (14 December 1984)