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David Lowe: Andrew, what I think is quite interesting in contract law is about how every year it’s not as if we have a radical new case that radically changes the law.
Quite the contrary, most the case law is always about the same old issues, I’m thinking this year, for example, of Trebor Bassett and ADT.
Andrew Smith: The case where the contract’s worth nine thousand and the loss is one hundred and ten million?
David Lowe: That’s the one and there was nothing very clever about it. It’s not a striking new change in the law, it was a straightforward battle of the forms case.
ADT provide some fire suppressant equipment for Trebor Bassett’s popcorn factory, it doesn’t work and the factory burns down, £110 million later.
And, of course, ADT had a set of terms and conditions that had a cap on liability but they didn’t manage to get it into the contract.
Trebor Bassett managed to get their terms in instead which have no cap. Trebor Bassett did that by very diligently making sure that their terms apply.
ADT failed to ever provide their terms and conditions to Trebor Bassett.
It was a relatively straightforward decision by the court to make £9,000 turns in to a £110 million loss.
Andrew Smith: I mean I always find these kind of cases the most difficult and the reason for that is with the battle of the forms you either win or you lose
and it’s a bit like playing Russian roulette but where you have half the chambers full of bullets, so it’s a really tricky situation I agree.
I mean I think one of the really interesting things about that case is that although it is breach of contract case, the winner,
the person who won the case overall only got £28.5 million out of the £110 million loss and why was that?
Well, because of contributory negligence and I think most people would think:
“Well just a minute I thought breach of contract was strict liability. If you win, you win, and you win the lot.”
But actually this case showed that actually with contributory negligence it can apply in breach of contract where the breach is akin to a tortuous duty.
So it’s a breach of a duty of care. So in this particular instance it was a failure by the contractor to exercise reasonable skill and care in doing the works.
That actually meant that the loss that was suffered may have been £110 million, but the claimant was only able to recover £28.5 million.
David Lowe: It is very depressing reading the case about how Trebor Bassett ignored risk management warnings about compartmentalising its factory, about focusing on the risk arising from fire.
And I think what you’re saying is because ADT was negligent, was in breach of reasonable skill and care, it was able then to knock off its liability to reflect Trebor Bassett’s contribution.
Andrew Smith: Absolutely, whereas if the court had found that the sprinkler system was not ‘fit for purpose’,
which is a straightforward contractual term, then Trebor Bassett would have got the full £110 million.
It seems quite extraordinary and quite a big difference between those two.
David Lowe: And then of course, when you think about what can you learn from this case,
I think one of my key lessons of contracts law is how in the 21st century how we forgot the good old fashioned discipline
and making sure our terms and conditions are incorporated because in the old paper days everyone very diligently put their terms and conditions on the back of the invoice,
on the back of a quotation, on the back of the order form and responded to the other parties’ terms and conditions.
But in an electronic world of PDFs and emails people are forgetting that, and I think the key lesson is that those basic requirements of battle of the forms still apply
and it is really important to be disciplined on your electronic contract formation.