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

Phillips hired a JCB excavator and driver from Hamstead. The driver negligently damaged Phillips' building. Hamstead relied on a contract condition transferring liability to the hirer. The Court of Appeal held the exclusion clause failed the reasonableness test under the Unfair Contract Terms Act 1977.

Facts

Phillips Products Ltd, steel stockholders, were carrying out factory extensions and hired a JCB excavator with driver from Hamstead Plant Hire Co. Ltd in August 1980. The contract incorporated standard CPA Conditions of Hire, including Condition 8, which provided that when a driver is supplied by the owner, he shall be regarded as the servant of the hirer who alone shall be responsible for all claims arising in connection with the operation of the plant. The driver, Mr Hyland, negligently drove the JCB into Phillips’ buildings, causing damage of £3,043.50.

The Hire Contract and Condition 8

Condition 8 stated that when a driver is supplied by the owner, he shall be under the direction and control of the hirer, and such drivers shall for all purposes be regarded as servants of the hirer who alone shall be responsible for all claims arising in connection with the operation of the plant.

Issues

Three main issues arose:

1. Whether there was ‘negligence’ within section 1(1) of the Unfair Contract Terms Act 1977
2. Whether Condition 8 was a contract term which ‘excluded or restricted’ liability for negligence within section 2(2) of the Act
3. Whether Condition 8 satisfied the requirement of reasonableness under section 11 of the Act

Judgment

Issue (i): Definition of Negligence

The Court rejected Hamstead’s argument that there could be no breach of a common law duty where a contract purports to absolve a party from negligence liability. The Court held that in determining whether there has been negligence under section 1(1), the court must leave out of account the contract term relied upon as defeating the claim. Section 1(4) confirmed that liability arising vicariously was covered.

Issue (ii): Exclusion or Restriction of Liability

The Court distinguished the House of Lords decision in Arthur White (Contractors) Ltd v Tarmac Civil Engineering Ltd, noting that the question was not whether the Alderslade presumption applied, but whether Condition 8 excluded or restricted liability within section 2(2). The Court held that a transfer of liability from A to B necessarily involves exclusion of liability for A. The substance and effect of the term must be examined, not merely its form or label.

Issue (iii): Reasonableness

The trial judge found Condition 8 failed the reasonableness test, considering: Phillips had no occasion to hire plant except on rare building occasions; the hire was arranged at short notice with no opportunity to consider the detailed conditions; Phillips had little opportunity to arrange insurance for such risks; Phillips had no part in selecting the driver and had to accept whoever Hamstead sent; despite Condition 8’s wording about ‘direction and control’, the driver made clear he would brook no interference in how he operated the machine.

The Court of Appeal applied Lord Bridge’s guidance from George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd that appellate courts should treat original decisions on reasonableness with utmost respect and refrain from interference unless satisfied the decision proceeded on erroneous principle or was plainly and obviously wrong.

Implications

This case established important principles regarding the Unfair Contract Terms Act 1977:

• The reasonableness test must be applied to the particular contract in question, not as a general question about the validity of such terms
• A transfer of liability clause can constitute an exclusion clause under section 2(2)
• The burden of proving reasonableness lies on the party seeking to rely on the exclusion clause
• Relevant circumstances include relative bargaining positions, opportunity to negotiate terms, and practical control over the negligent party
• The decision emphasised that courts should examine the substance and effect of clauses rather than their form

The Court stressed that its conclusion on the particular facts should not be treated as binding precedent where similar clauses arise but with different surrounding circumstances.

Verdict: Appeal dismissed. The Court of Appeal upheld the trial judge’s decision that Hamstead Plant Hire Co. Ltd could not rely on Condition 8 to exclude liability for the driver’s negligence, as the clause failed the reasonableness test under the Unfair Contract Terms Act 1977. Judgment was affirmed for Phillips Products Ltd against both defendants for £3,043.50 damages plus costs.

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