Exemption Clauses.

Question 1

What is an exemption clause?

Answer 1

○ Provide that one party will not be liable in certain situations.
Defeats or limits liability for a certain term.

Question 1

In what ways can an exemption clause be beneficial?

Answer 1

Allocates the risk between parties.

Question 2

What is a key issue with exemption clauses?

Answer 2

How it is incorporated

Question 3

What is the freedom of contract theory?

Answer 3

○ Insists that the choice is of the parties and not of the courts.
Parties can bargain with or without exemption clauses, but they must live with the consequences of that bargain.

Question 4

What do the courts object to?

Answer 4

-The abuse of exemption clauses.

Question 5

What do many companies offering a particular type of service use?

Answer 5

Standard forms which contain exemption clauses and so there is no real choice, often one sided.

Question 6

How are the exemption clauses often formatted?

Answer 6

Long, boring and in tiny writing to deter people from reading it.

Question 7

How come unreasonable exemption clauses are not stated as invalid?

Answer 7

○ Photo production v Securior (1980):
Courts had no common law power to strike down unreasonable exemption clauses.

Question 8

What methods do the courts adopt?

Answer 8

Incorporation and interpretation.

Question 9

What is in place for businesses only to tackle exemption clauses?

Answer 9

The Unfair Contract Terms Act 1977 (UCTA)

Question 10

What is in place for consumers, to tackle exemption clauses?

Answer 10

The Consumer Rights Act 2015.

Question 11

When is an exemption clause incorporated into a contract?

Answer 11

if it is contained in a single, contractual document.

Question 12

What is allowed by the courts in regards to when the contract took place?

Answer 12

Where an exemption clause is notified on the back of a ticket, the notice will be sufficiently contemporaneous with the contract even though technically the contract will have taken place a split second before the ticket was handed over.

Question 13

When is the notice a contractual one?

Answer 13

If the notice forms part of the contract.

Question 14

When is the notice without contractual significance?

Answer 14

If the notice does not form part of the contract.

Question 15

What is required for the existence of terms?

Answer 15

Only reasonable notice for the existence of terms and not their detailed contents.

Question 16

What is required for onerous or unusual terms?

Answer 16

A higher degree of notice.

Question 17

What is course of dealing?

Answer 17

If the parties have contracted on certain terms in the past.

Question 18

What is trade custom?

Answer 18

It’s possible to incorporate a term on the ground that it is so common in the parties’ area of business that they must have intended it to be a term of the contract.

Question 19

What does contra proferentem mean?

Answer 19

‘Against the person proffering it, or putting it forward’ and the exemption clause will be interpreted against the person seeking to rely on it so as to exclude their liability.

Question 20

What is a rule around contra proferentem?

Answer 20

The person responsible for including the clause in the contract has the opportunity to make the wording clear and so should be the one to lose out if there is any ambiguity.

Question 21

What is it about fundamental breach?

Answer 21

Some terms are so fundamental to the purpose of the contract that it is almost inconceivable that the parties could have agreed to exclude liability for their breach.

Question 22

What are limitation clauses?

Answer 22

A limitation clause does not completely absolve a party from liability but instead places a limit, a ceiling, on the maximum liability.

Question 23

What is the UCTA’s role where a business seeks to restrict/limit its liability?

Answer 23

Focuses on a n contract where a business is seeking to restrict/limit its liability.
Some businesses are much more powerful than others and their exercise of this power needs to be scrutinized under the Act which looks carefully at their attempts to exclude ‘business liability’ because of the inherent risk of abuse.

Question 24

What does section 2(1) deal with?

Answer 24

Dealing with exclusion of liability for death or personal injury caused by negligence (the rationale for singling these out is self-evident)

Question 25

What does section 6(1) deal with?

Answer 25

The implied terms as to title in contracts of sale and hire purchase of goods. The latter are singled out because the exclusion is of a liability which is implied in law.

Question 26

What are duty defining clauses?

Answer 26

Exclusion clauses traditionally wait for a liability to arise and then act to exclude this liability. Duty defining terms act by defining the parties’ obligations in such a way that the liability never arises. In both cases one party will succeed in avoiding liability, either by exclusion or by definition.

Question 27

What section of the UCTA is the reasonable test under?

Answer 27

S.11, subsection 5.

Question 28

When are limitation clauses understandable?

Answer 28

The resources available to the party excluding the liability—obviously, the smaller those resources, the more understandable is a limitation of liability; and
(b)
The availability of insurance—again the less the opportunity to insure against a liability, the more understandable is the attempt to limit the liability.

Question 29

What are liquidated damages clauses?

Answer 29

A genuine pre-estimate of the loss which is enforceable.

Question 30

What are penalty clauses?

Answer 30

Do not genuinely tend to estimate the pre-estimate real loss or to protect some legitimate interest, instead they are designed to penalize one party for his breech.

Question 31

What is a forfeiture clause?

Answer 31

A, who has already paid a sum of money under the contract, forfeits (i.e. cannot recover) the money when it is terminated because of A’s own breach. This is, in effect, a penalty clause brought forward in time.

Question 32

Who is the test of reasonableness used against?

Answer 32

Against the person attempting to rely on the exemption clause.

Question 33

What will be recognised as a penalty clause?

Answer 33

Anything to scare the consumer. Not enforceable, the sum is not recoverable.

Question 34

What is enforceable?

Answer 34

Liquidated damages clauses, the sum is recoverable.

Question 35

What was stated by Lord Neuberger in Cavendish Holdings v Makdessi?

Answer 35

Penalty clauses are unenforceable because they impose a detriment on the contract breaker out of all proportion to the legitimate interest of the innocent party in the enforcement of the primary obligation.

Question 36

What is the difference between liquidated damages and penalty clauses?

Answer 36

Liquidated damages is a genuine pre-estimate of the loss which is enforceable.
Penalty clauses do not genuinely tend to estimate the pre-estimate real loss or to protect some legitimate interest, instead they are designed to penalize one party for his breech.

Question 37

What has the Supreme Court recase the penalty clause as?

Answer 37

‘The sum or remedy stipulated as a consequence of breach of contract is exorbitant or unconscionable when regard is had to the innocent party’s interest in the performance of the contract’.

Question 38

What is a forfeiture clause?

Answer 38

A, who has already paid a sum of money under the contract, forfeits (i.e. cannot recover) the money when it is terminated because of A’s own breach. This is, in effect, a penalty clause brought forward in time.

Question 39

What was the view expressed in Cavendish by Lord Hodge?

Answer 39

That deposits could be subject to the penalty rule.

Question 40

What does the Unfair Contract Terms Act 1977 deal with?

Answer 40

Only exclusion and limitation clauses.

Question 41

What does section 2 of UCTA deal with?

Answer 41

Exclusions of liability for negligence.

Question 42

What does section 2 of UCTA state about death/personal injury?

Answer 42

A person cannot by reference to any contract term or to a notice … exclude or restrict his liability for death or personal injury resulting from negligence.

Question 43

What does section 2 of UCTA state about loss/damage?

Answer 43

In the case of other loss or damage, a person cannot so exclude or restrict his liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness. Must show it is reasonable to include that exclusion (sufficient notice is one of the terms).

Question 44

What does section 3 of UCTA apply?

Answer 44

The requirement of reasonableness to ‘standard form’ contracts which seek to exclude business liability. If a form is imposed upon the other party without negotiation, this can be onerous.

Question 45

What does section 7 and 11 of UCTA include?

Answer 45

Test of reasonableness.