This note considers whether a contract term can exclude all liability for latent defects and limit liability to defect repair or replacement. The clause is based on clause 36.9 from MF/1, the Model Form of conditions for electrical, electronic and mechanical plant from IMechE/IET. The relevant cases are British Fermentation Products v Compair Reavell [1999] 2 All ER (Comm) 389 and in BHP Petroleum v British Steel [2000]2 All ER (Comm) 133. The note was prepared by Sarah fox, 500 Words Ltd. She has reviewed, adapted, advised and trained on the MF/1 form of contract. www.500words.co.uk

1. Excluding Liability for Latent Defects
In two cases,1
the court has considered clauses, which provided that the usual 12-month defects
period was instead of any other remedy for defects. This excluded liability for latent defects i.e.
those arising after the defects period.
1 The Clause
In BFP v Compair, the contract stated that the defects period was:
“in lieu of any warranty or condition implied by law as to the quality or fitness for any particular purpose of the
goods and save as provided in this condition the Vendor shall not be under any liability to the Purchaser
(whether in contract, tort or otherwise) for any defects in the goods or for any damage, loss, death or injury
(other than death or personal injury caused by the negligence of the Vendor as defined in Section 1 of the
Unfair Contract Terms Act 1977) resulting from such defects or from any work done in connection therewith.”
This clause is a forerunner of clause 36.9 in MF/1 rev 6.2
2 The Business Justification
When reviewing a limitation or exclusion clause, the court considers the whole contract to see what
other remedies exist. The judge in BFP v Compair said:
“It seems to me that the business commonsense intention of the agreement as a
whole is that the vendors undertake to supply a machine of the specification
warranted, and if they fail in that undertaking the purchasers have an initial
right to withdraw from the contract and reject the machine on terms that the
vendors pay for them to buy from other suppliers a machine that is up to
specification. If the purchasers so choose, there will be a period when the
vendors will try to bring the machine up to specification, and those efforts again
may be terminated by the purchasers by rejecting on the same agreed terms. If
the purchasers still do not reject when the machine fails to come up to
specification, the purchasers keep the machine but on terms that they do not
complain thereafter of the failure to come up to specification. The amount of the
damages claimed in this action compared with the purchase price shows the
good business commonsense of the contract. If the project is not successful, the
purchasers have two opportunities to withdraw and buy a substitute machine of
the standard warranted from another supplier at the vendor's expense, but they
are not to be allowed to stand on the deal and charge the vendors enormous
sums for their loss continuing for the life of the machine.”3
3 What Do Defects Clauses Do?
In BHP v British Steel [2000] May LJ said in relation to a similar clause:4
“[Orthodox] defects liability clause[s]…do not limit or exclude liability. Typically
they confer additional rights and obligations requiring the contractor or supplier
to undertake additional work to rectify defects which appear within a defined
time after completion usually without additional payment. They may be seen as
benefiting both parties…The amended clause was no longer only a defects
liability clause… it contained limitations of liability.”

2. 4 Interpreting Specific Phrases
Reviewing specific parts of the clause cited above, the court in BFP v Compair held:
 ‘any warranty or condition implied by law’ is restricted to implied terms;
 ‘save as provided for in this condition’ refers to the exclusion of negligence as defined by s1
UCTA;5
 ‘defects in the goods’ means failure to come up to any express performance specification;
 ‘shall not be under any liability to the purchaser’ is not limited to any warranty or condition
implied by law as the words which follow “indicate an intention to go far beyond the boundaries
of liability for breach of implied terms and to refer to liability for breach of express terms, tort,
and other forms of liability”;6
 ‘tort’ is not limited to liability for breach of implied terms;
 ‘contract’ extends to both implied and express terms; and
 ‘or from any work done in connection therewith’ clearly refers to rectification and repair during
the defects period.
5 Consequences for the Parties
The buyer is provided with many opportunities under the MF/1 form of contract to test, inspect and
ensure the performance of the goods against objective criteria. Each stage provides remedies such
as a reduction in price payable, rejection, repair/replacement and re-testing. Latent defects become
the buyer’s risk and the buyer cannot continue to complain.
The supplier is required to keep the goods and plant operable for a specific period (the defects
period), but not for the life of the plant. This enables the supplier to understand the extent of its
liability and to agree a price that reflects this risk.
The Author
Sarah Fox of 500 Words Ltd wrote this note. She is both a fan of and experienced in reviewing the
MF suite of contract including MF/1. As a speaker and trainer, Sarah helps construction specialists
write simpler contracts and understand complex ones. She is also author of a series of 500-Word
construction contracts.
To find out how Sarah can help you avoid disputes contact her on: 07767 342747 or by email:
sarah@500words.co.uk
Footnotes
1
British Fermentation Products v Compair Reavell [1999] 2 All ER (Comm) 389 and in BHP Petroleum v
British Steel [2000]2 All ER (Comm) 133.
2
The Model Form of Contract for the design, supply and installation of electrical, electronic and
mechanical plant published by IET and IMechE, 2014 edition.
3
Paragraph 25.
4
A defects clause combined with an exclusion of further liability and a cap on all liability ‘arising out of
work not complying with the requirements of the contract.’
5
Unfair Contract Terms Act 1977. For section 1, see Legislation.
6
Paragraph 26.