Limitation or Exclusion of Liability for Breaches of Implied Terms under the Sale of Goods Act
In our previous discussions, we looked at the implied terms under Sections 12–15 of the Sale of Goods Act 1979 (SGA). These terms ensure that goods are as described, of satisfactory quality, and fit for their intended purpose. But what happens if a seller wants to limit or exclude liability for breaches of these implied obligations?
This brings us to Section 55 SGA and the role of the Unfair Contract Terms Act 1977 (UCTA).
The Principle of Freedom of Contract
English contract law values the principle of freedom of contract. Under s.55(1) SGA, parties are free to “negative or vary” rights and duties that arise by implication of law. In simple terms, the law allows parties to agree that certain implied terms will not apply, or that liability for their breach will be reduced.
For example:
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Two businesses agree that goods are sold “as seen,” meaning the buyer cannot later complain about defects that were visible.
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A supplier includes a clause stating that their liability for defective goods is capped at the purchase price.
At first sight, this seems perfectly reasonable — commercial parties should have the autonomy to negotiate risk allocation. But this freedom is not absolute. Parliament has intervened through UCTA to restrict unfair exclusions.
The Role of UCTA 1977
UCTA sets out clear limits on when exclusion or limitation clauses are valid. The Act focuses particularly on business-to-business contracts and, in some circumstances, private sales.
Here’s the key framework:
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Liability under s.12 SGA (title and ownership)
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Liability under ss.13–15 SGA (description, quality, fitness, sample)
What Does “Reasonableness” Mean?
UCTA, s.11(1) defines the test:
A term is reasonable if it is “fair and reasonable” to allow reliance on it, having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.
In practice, courts apply factors listed in Schedule 2, such as:
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Bargaining power: Was one party in a much weaker position?
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Inducements: Did the buyer receive compensation or benefit in exchange for accepting the exclusion clause?
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Knowledge: Did the buyer know (or should they reasonably have known) about the clause?
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Alternative options: Could the buyer have purchased similar goods elsewhere without such a restriction?
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Practical arrangements: Did the seller offer remedies outside the strict contract (e.g., extended warranties, repairs)?
How This Works in Real Life
Scenario A: Small Business v. Large Supplier
A small independent bakery buys a second-hand industrial oven from a large catering supplier. The contract includes a clause stating:
“The oven is sold as seen, and the seller accepts no liability for defects.”
The bakery later discovers that the oven cannot maintain a safe temperature, making it unusable. The clause attempts to exclude liability for satisfactory quality under s.14.
Would this be valid? Probably not. The bakery had no real bargaining power, the supplier drafted the standard terms, and the defect went beyond what a reasonable inspection could reveal. The exclusion is unlikely to satisfy the UCTA reasonableness test.
Scenario B: Equal Bargaining Businesses
Two multinational companies negotiate a contract for the bulk supply of microchips. The seller includes a clause capping liability at £500,000, instead of full damages. Both parties are represented by legal teams and understand the risks. The seller also provides a detailed scheme of replacement parts for two years.
Would this clause stand? Quite possibly yes. The bargaining power is equal, the clause is clear, and alternative remedies are provided. Courts tend to respect negotiated risk allocation between sophisticated parties.
Clarity of Drafting
One of the most important lessons from case law is that exclusion clauses must be crystal clear. Ambiguity is interpreted against the party seeking to rely on the clause.
For example:
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Saying “the seller accepts no liability” might not be enough if it does not specifically mention implied terms.
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A clause that explicitly states “all implied conditions under the Sale of Goods Act are excluded to the fullest extent permitted by law” leaves less room for argument.
International Contracts
It’s important to note that UCTA does not apply to international supply contracts (as defined in s.26). For cross-border trade, the common law rules apply instead. In those cases, the enforceability of exclusion clauses depends largely on contractual interpretation and general principles of fairness.
Why This Matters
Exclusion and limitation clauses sit at the intersection of commercial freedom and consumer protection. On the one hand, businesses must be free to structure their contracts, allocate risks, and manage liability. On the other hand, weaker parties should not be stripped of essential statutory protections through fine print.
In practice, the outcome often depends on:
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the precise wording of the clause,
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the context of negotiation,
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and whether the balance of power was fair.
Key Takeaways
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Section 55 SGA allows liability for implied terms to be excluded or varied.
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UCTA 1977 restricts this freedom:
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Reasonableness depends on fairness, bargaining power, alternatives, and clarity of drafting.
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Business-to-consumer contracts are more strictly regulated, while business-to-business contracts are judged by fairness and negotiation context.
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International contracts are exempt from UCTA, leaving common law to decide.
In short: Exclusion clauses in sales contracts are not automatically invalid — but they survive only if they are clear, negotiated, and reasonable. Courts in 2025 continue to apply a fact-sensitive approach, meaning that the outcome often depends on the fine details of the contract and the context in which it was made.
Under Section 55 SGA, what freedom do parties have regarding implied terms?
Parties may exclude or vary implied terms by agreement.
Implied terms can never be modified under any circumstances.
Only consumers can agree to limit liability.
Which implied term under SGA cannot be excluded even under UCTA?
Section 12 SGA: title and ownership of goods.
Section 14 SGA: fitness for purpose.
Section 15 SGA: sale by sample.
What is the key test under UCTA 1977 for excluding liability for breaches of implied terms?
The clause must be “fair and reasonable” in the circumstances.
Any exclusion clause is automatically valid if signed.
Reasonableness is irrelevant for business contracts.
Which factor does NOT influence the reasonableness of an exclusion clause under UCTA?
The relative bargaining power of the parties.
Whether the buyer had knowledge of the clause.
The weather conditions on the day the contract was signed.
