Contract Terms: Exclusion Clauses, Unfair Terms and Implied Terms Flashcards
Definition of an exclusion clause
“Any term in a contract restricting, excluding or modifying a remedy or liability arising out of a breach of a contractual obligation”
(Yates, Exclusion Clauses in Contracts, 1982)
What is the purpose of exclusion clauses?
To define obligations, enable the allocation of risk, deterrence, defence and standardisation.
What are the requirements for an exclusion clause to be included in a contract?
1) The clause must be incorporated in the contract or else it can’t be enforced
2) It must satisfy the rules of interpretation, properly covering the loss that has occured
3) It cannot be enforced if it contradicts another rule of law invalidating the clause, e.g. UCTA
Criteria of incorporation
One of the four must be met:
- signature
- notice
- course of dealing
- trade custom
Where a contract is signed you are bound by the terms contained thereof regardless of whether you have read them
L’Estrange v Graucob
The exclusion clause will not be incorporated if the signature is obtained by a misrepresentation
Curtis v Chemical Cleaning and Dyeing Co Ltd
Wedding dress, asked what signing exclusion of dry cleaner’s liability for, told damage to beads but supposed to be all damage. Her dress stained.
The timing of notice needs to be before the contract is formed
Olley v Marlborough Court
Contract normally formed at hotel desk so notice in bedroom too late.
Notice needs to be in a sufficiently contractual-type document
Chapelton v Barry Urban District Council
Receipt for use of deckchair not reasonable esp as payment normally collected some time after use.
The degree of notice required for incorporation depends on how onerous or unusual the exclusion clause is
Interfoto Picture Library - extortionate fine not drawn enough attention to
J.Spurling Ltd v Bradshaw - some would require ‘red ink/red hand pointing to it’ on the face of document according to Lord Denning
If you can show an established course of dealing on traditionally the same terms (incl. the same terms) then held to be incorporated
Hardwick Game Farm v Suffolk AA - 3/4 times a month over a year is enough to incorporate
Hollier v Rambler Motors - 3/4 times over 5 years not enough
Terms are incorporated if parties are both in a trade where these conditions are habitually imposed in normal practice
British Crane Hire v Ipswich Plant Hire
Usual to expect terms of crane hire, same trade, both know this.
The contra proferentem rule to interpretation
Where there is ambiguity/uncertainty the benefit of the doubt is given to the other party not relying on the exclusion clause. Person responsible for contract had opportunity to make wording clear.
Photo Productions v Securior - Lord Diplock warned not to take rule too far - don’t use if clear meaning.
Example of the contra proferentem rule
Houghton v Trafalgar Insurance Co Ltd
Term excluding liability if car carrying an ‘excessive load’ deemed to apply to baggage and not to passengers.
Criteria for the inclusion of exclusion clauses with regards to wording
Canada Steamship Lines v The King - only allow clauses where:
a) expressly covers negligence, clear and unambiguous
b) if not, can the words be interpreted to cover negligence?
c) if interpreted, it’s only effective if the clause could ONLY apply to negligence damage
An exclusion clause that wasn’t clearly worded enough to cover negligence liability
Hollier v Rambler Motors
Exclusion clause for liability caused by fire to customer’s cars, not clear enough to just cover negligence. Should have used plainer language.
Argument that court so strict because he was consumer and couldn’t strike down unreasonable clauses via UCTA 1977 yet.
What is the fundamental breach doctrine?
Karsales v Wallis
Lord Denning - can’t exclude liability for breach of a fundamental term (as this terminates the contract)
Who over-ruled the fundamental breach doctrine?
The HoL in Photo Production v Securior - fundamental breach does not bring contract to an end, it only cancels future obligations
UCTA s1
Act only applies to business liability
Specifically s2-7. Normally b2c relations but can be b2b.
UCTA s2 - Negligence liability
s2(1) - cannot exclude or restrict liability for death or personal injury resulting from negligence
s2(2) - in the case of other loss/damage the restriction of liability for negligence must satisfy the requirement of reasonableness
UCTA s3 - Liability arising in contract
s3(1) must deal with consumer or one of their’s ‘written standard terms of business’ (standard form contracts)
Cannot exclude or restrict liability for breach of contract or render any performance substantially different from that expected of him, or render no performance at all except insofar as term satisfies the test of reasonableness
UCTA s4 - Unreasonable indemnity clauses
s4(1) consumers cannot be required to indemnify the other party, unless the term satisfies the requirement of reasonableness
UCTA s6 - Sale and hire-purchase
s6(1) the exclusion/restriction of liability in relation to title warranties (s12 Sale of Goods Act 1979) is ineffective
s6(2) exclusion of other terms (e.g. conformity of goods with description or sample etc - s13-15 of 1979 Act) against a person dealing as a CONSUMER is ineffective
s6(3) terms above when dealing with non-consumer is subject to reasonableness test
UCTA s11 - The “reasonableness” test
s11(1) the term should have been a fair and reasonable one to be included having regard to the circumstances which were, or ought to have been known to or in the contemplation of the parties when the contract was made
UCTA schedule 2 guidelines on application of reasonableness test
Consider:
-strength of bargaining power
-whether inducement to agree to the term (lower price)
-whether the consumer ought to have known of the term
etc.
