Watford Electronics Ltd v Sanderson CFL Ltd
Courts should be slow to find exclusion clauses unreasonable in contracts negotiated between experienced commercial parties of equal bargaining power.
Facts
Watford, a computer retailer, bought a bespoke software and hardware system from Sanderson to run its business, for about £105,000. The contract, which had been negotiated between experienced businesses, excluded Sanderson's liability for indirect or consequential losses and limited any other liability to the price paid. The system did not work properly, and Watford claimed damages of about £5.5 million, including lost profits. The trial judge held that the clauses were unreasonable under the Unfair Contract Terms Act 1977.
Legal principle
The Court of Appeal held that the clauses were reasonable and Watford's claim for consequential losses failed. Chadwick LJ said that where experienced businessmen representing substantial companies of equal bargaining power negotiate an agreement, they may be taken to have had regard to the matters known to them, should be taken to be the best judges of the commercial fairness of the agreement, and should be taken to be the best judges of whether the terms are reasonable. The court should not interfere unless one party has, in effect, taken unfair advantage of the other or a term is so unreasonable that it cannot properly have been understood or considered.
Related cases on exclusion clauses and unfair terms
- Canada Steamship Lines Ltd v The King [1952] AC 192
- Chapelton v Barry Urban District Council [1940] 1 KB 532
- Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805
- Director General of Fair Trading v First National Bank plc [2001] UKHL 52, [2002] 1 AC 481
- George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] 2 AC 803
- Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371
- Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71
- Hopcraft v Close Brothers Ltd [2025] UKSC 33
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This summary is for study and revision and is not legal advice. Although our case summaries are checked for accuracy, we do not guarantee that they are free from errors or omissions. Always read the full judgment for the court's reasoning.
