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Flashcards in Exemption clauses Deck (30):

Issues of incorporation and legislative control over validity of exemption clauses.

Assuming a clause is validly incorporated, before testing against relevant leg

Must ask whether UCTA 1977 covers the breach which has occurred.


2 views of exemption clauses - McKendrick

1. Social nuisance, can be imposed upon a contracting party who lacks any real opportunity to take issue with them. Construed narrowly.
2. Exemption clauses fine-tune a contract, where risks lie to save need to go to law. Protection to parties where otherwise would be too risky.

Basic principle - they are effective if clearly drafted.


Contra Proferentem principle -

Where there is an ambiguity in an E clause - therefore a choice of ways for court to go. Resolved against the party seeking to rely on the exemption. Often seen as excuses relevant only where one party has breached its primary obligations.


Wallis, Son & Wells v Pratt & Haynes (1911)

FACTS: Defs sold seed to Pls, who sold on. Found to be an inferior strain of seed than was sold as. Pl settled action from sub-buyer, sued defs. Defs relied on “Sellers give no warranty, express or implied, as to growth, description, or any other matters...”.

HELD: HL - upheld Pl claim for damages. Fletcher Moulton LJ Dissent AC. Based himself on distinction between warranties and conditions, clause could only refer to a warranty. But condition was breached, clause had not application.

Broader picture creates difficulty - plausible to suppose the sellers felt it necessary to exclude all warranties, but content to leave all conditions standing? But slip of drafting allowed by court.

Certainty - narrow meaning ensures people make better contracts.


E clauses deserve narrow reading for policy. Should vary according to effect of clause being construed:

- excluding liability altogether
- limit liability to an agreed maximum amount by way of compensation.

Narrow approach applies to both, but strong with exclusions - Alisa Craig Fishing Co v Malvern Fishing Co 1983.

But some limitation clauses can be more onerous than some exclusion clauses...

If E clause is repugnant to contract itself, may be deprived of effect by courts.


Andrews Bros (Bournemouth) Ltd v Singer & Co Ltd (1934)

FACTS: Defs appointed pl as dealers to buy and sell "New Singer Cars". Contract included clause “All cars sold by the company are subject to the terms of the warranty set out in Schedule No. 3 of this agreement and all conditions, warranties and liabilities implied by common law, statute or otherwise are excluded”. One of the cars supplied was not new - had been driven for 550 miles to show a potential customer. Clause prevent liability?

HELD AC - no - contract expressly for sale of new cars. Clause ousted implied terms, not express ones.

Argued "new" cars was an implied term - s13 SGA 1893 stated that “where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description...”.

Scrutton LJ - strained meaning of "implied". They were expressly described in the contract.

Def's submission is too broad - where there is a contract for the sale of goods by description, an exemption clause which purports to make it not a sale by description attacks the contract itself.

Benjamin on Sale: "nothing else could satisfy the contract than providing new Singer cars. Otherwise if seller can avoid his descriptive words can ignore others - may not be a Singer car, or even a car."

Also stated in Chanter v Hopkins (1838) in which Lord Abinger said “If a man offers to buy peas of another, and he sends him beans, he does not perform his contract”.


Karsales (Harrow) Ltd v Wallis (1956)

FACTS: Began as action brought to recover arrears owing on acquisition of a car by hire purchase. Hired out, but was not roadworthy. In bringing their claim for arrears, Karsales placed reliance on Clause 3(g) of the agreement which stated “No condition or warranty that the vehicle is roadworthy, or as to its age, condition or fitness for any purpose is given by the owner or implied herein”.

HELD AC - exemption clause didn't apply - agreement related to a car, the vehicle was no longer a car, so damaged was incapable of self-propulsion.

Peas and beans approach leads to line-drawing - when is car so badly damaged to stop being a car? But can associate with cases of non-performance of the contract rather than defective performance. I.e. can't exclude non-performance, would render performance a discretion, distinct from legal obligation and contract collapses, failure of trinity - OAC/LR.


Fundamental breach

Harbutt’s Plasticine Ltd v Wayne Tank & Pump Co Ltd [1970]

Denning proposed where a fundamental term (i.e. a condition) was breached and wronged party elected to terminate contract, any exemption clause within it ceases to operate. Made invalidation consequent on one party's uncontroversial entitlement to bring the contract to an end for breach of condition. But wrong to assert that termination of the contract deprives it of further effect. Remains an instrument which maintains right to recover damages etc.

Denning thought exemption clause would automatically cease to operate if contract was breached in a fundamental way. Rule of construction - not normally taken to be parties intention that a contract should exclude all liability.

But made the rule substantive or absolute, so exemption clauses were ineffective in cases of fundamental breach.

Overruled by Photo Productions 1980


Photo Productions Ltd v Securicor Transport Ltd (1980)

FACTS:. Contract made in 1968 - Securicor agreed to provide its Night Patrol Service to Photo Productions. “under no circumstances shall [Securicor] be responsible for any injurious act or default by any employee of [Securicor] unless such act or default could have been foreseen and avoided by the exercise of due diligence on the part of [Securicor] as his employer...”. One of the employees light a match onto cartons, fire got out of control and burnt down their premises - damage of 615,000. PP sued for damages, S relied on clause.

AC applied Doctrine of Fundamental breach, held that employee's behaviour brought the contract to an end. or that clause couldn't be construed to apply to the breach which had occurred. HL reversing AC and overruling Harbutts HELD

Doctrine of FB amounted to rule of construction only. Clause was effective to shield Securicor from liability. Modest charge for its service, and lack of knowledge of PP premises and fire precautions led to inference that contract left risk damage on PP.


Lord Wilberforce - HL Photo Productions AC:

Fundamental breach doesn't avoid the contract.

That AC misunderstood decision in Suisse Atlantique 1967. Stated that was no substantive doctrine of fundamental breach invalidating exemption clauses upon a contract’s termination.

While true to say parties wouldn't have intended exemption of fundamental breach, q was whether the clause did or did not apply on true construction of the contract.


2 linked classes of commercial contract for FB -

1. contracts for carriage of goods
2. contracts of bailment (goods kept and later restored to bailee) - any deviation from agreed voyage or diversion of goods takes the def outside the 4 walls of the contract, beyond protection of Ex cls.

Peas and beans analysis. Or
Lord Wilberforce in passing in Photo Productions: “It may be preferable that they should be considered as a body of authority sui generis with special rules derived from historical and commercial reasons"


Canada Steamship v The King (1952)

FACTS: Pls goods stored in shed. Neg, def's shed caught fire, goods destroyed. Clause in lease stated no claim for goods stored in shed.

PC HELD: although wording was wide enough to cover neg loss (although didn't expressly refer to it) breadth made it capable of covering not only loss caused by neg but other loss too. Civil Code in Quebec imposed other liabilities on lessors, clause deemed to have been intended to cover those, not to shield Crown against consequences of its servant's negligence.

Lord Morton of Henryton re liability in negligence:

1) If clause expressly exempts proferens from consequence of negligence, effect is given.
2) if no express neg reference, court must consider if words are wide enough
3). If wide enough, then consider whether damage may be based on another ground that neg - Alderslade. Not fanciful or remote that the proferens couldn't have wanted protection against it, but existence of head od damage other than that of Neg is fatal to proferens, even if words used are prima facie wide enough to cover neg.

Therefore - may expressly exclude liability for neg or with broad words, but too broad and may refer to other things than neg.


Hollier v Rambler Motors (1972)


Pl left car for repair at Def's garage, negligence, fire, damaged car. Pl sued for damaged. But The company is not responsible for damage caused by fire to customers’ cars on the premises”. TJ accepted clause was incorporated by course of dealing, pl had signed it before.

AC - reversed, course of dealing insufficient. But wouldn't have protected Def anyway.

Salmon LJ applies Canada Steamship -

Clause excluding liability for neg should make meaning plain by expressly stating it. But might put off customers. To be effective but be put across plainly. Def's can't shelter behind language otherwise.

Scrutton LJ - Rutter v Palmer 1922 -
1. def not exempted from liability of neg unless adequate words used
2. liability must be ascertained, particular clause considered, only if liability of party pleading exemption is a liability for neg will the clause more readily operate to exempt him.

Not "necessarily" exempt him - some cases where is interpretation of the contract.


Scrutton LJ in Rutter v Palmer, says that “the liability of the defendant apart from the exempting words must be ascertained”, and only then do those words fall to be considered as a possible defence to an action for breach of contract. But - Professor Coote - 1964

Not the only way to understand Ex clauses. Prefers "Exception" to Exemption" -

Ex are no different from other provisions in contracts. Should therefore inform view taken of what the primary contractual obligations are, artificial to decide without context.
(a) the sale of a horse warranted to be sound, but an exclusion of liability for its performance in hunting; and (b) the same horse warranted sound except for hunting.

Defensive understanding is impossible:
"Their function is different from that ascribed by the courts. Not mere shields to claims based on breach of accrued rights, but they delimit rights themselves. May seem that parties should have intended contractual duty to remain when they excluded liability for its breach, but this is a juristic impossibility. A duty of sorts there may be, but it will be a duty of honour, not a contractual one.

But longstanding view of courts is that as exemption clauses/defensive. Scrutton therefore mainstream.


Here we ask

(1) what the contract promised; (2) whether it was performed or breached; and (3) if breached, whether it includes an exemption which on its true construction provides a defence against the breach in question.

But Prof Coot - section 3 UCTA - liability arising in Contract, is drafted so a to control type of exemption clauses standing as defences to breach, also in accordance with C's understanding define and limit contractual undertakings. Act also sets limits.


The Unfair Contract Terms Act 1977

May use with threshold qs which affect Act's relevance to the facts.

Assuming Act applies, will be necessary to say accurately which section controls the term in question. If subjects term to a reasonableness test, a matter of choosing the correct reasonableness test - section 11 of Act contains 4 such tests.


Section 13 - UCTA

Extends the conception of exclusions or limitations of liability beyond the simple definition of an exemption clause. It may be the right starting point if a contract term seems onerous, but not a normal exemption clause


Reading P 1 - includes introductory provisions, asserts control over various types of contract or other terms. Ends with section 7.

Central part of Act - 2 - 7 is said by section 1(3) to apply only to business liability, save that section 6 is not limited in this way. Given that you are likely to want to use one of these central sections, it is of obvious importance to check whether you are dealing with business liability.


Among central sections - section 3 is of frequent relevant - (“liability arising in contract”

Its application is limited to instances where one contracting party deals as consumer or on the other’s written standard terms of business.


Section 12 UCTA

gives the Act’s definition of “dealing as consumer”. There is no legislative definition of “written standard terms of business”.


Sections 2 - 7

2 - negligence liability.
3 - liability arising in contract - more challenging.
6 - sale and hire purchase, difficult because of complex interlocking with SGA 1979 and Supply of Goods and Services Act 1982.


If clause subject to reasonable test by Act, look for test in

Section 11 - contains 4 tests, choose correct one - beginning words indicate.

11(2) explicitly requires C of reasonableness to be assessed in accordance with Schedule 2 criteria above. But authority that Schedule 2 can be referred to whenever question of a term's reasonableness is judges.

Reasonableness - don't need to go too far into facts. But show correct path through leg and understanding of where materials required for fuller argument are found.


Unfair Terms in Consumer Contracts Regulations 1999

The Regulations are intended to give effect to a 1993 EC Directive on Unfair Terms in Consumer Contracts.

Apply to contracts between seller or supplier and a consumer. Defined in Reg 3 "any natural person acting for purposes outside his trade, business or profession."


Regulation 5

Includes mechanism of control central to leg as a whole.

5 (1)“A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer”.

5(2) “A term shall always be regarded as not having been individually negotiated where it has been drafted in advance and the consumer has therefore not been able to influence the substance of the term”.


Regulation 8

An unfair term does not bind the consumer.


Regulation 6

indicates range of factors relevant for assessment of unfairness - states issue to be considered as at time of conclusion of contract. Ring-fenced by freedom of contract.


Regulation 7

Requires seller or supplier to ensure written terms expressed plainly. May be taken into account when decided whether term is unfair.

Also provides that doubt re meaning of a term to be resolved in favour of the consumer. Purposive application of Regs, also a leg adoption of contra proferentem rule.


Regs 10 - 15 -

Duties and powers of Dir General of Fair Trading re enforcement of Regs. Role of giving effect to Regs assumed by Unfair Contract Terms Unit of the Office of Fair Trading.


Sch 2 of Regs

Indicative and non-exhaustive list of terms which may be regarded as unfair. Familiarise

1. Terms which have the object or effect of–
(a) excluding or limiting the legal liability of a seller or supplier in the event of the death of a consumer or personal injury to the latter resulting from an act or omission of that seller or supplier;
(b) inappropriately excluding or limiting the legal rights of the consumer vis-à-vis the seller or supplier or another party in the event of total or partial non-performance or inadequate performance by the seller or supplier of any of the contractual obligations, including the option of offsetting a debt owed to the seller or supplier against any claim which the consumer may have against him;
(c) making an agreement binding on the consumer whereas provision of services by the seller or supplier is subject to a condition whose realisation depends on his own will alone;
(d) permitting the seller or supplier to retain sums paid by the consumer where the latter decides not to conclude or perform the contract, without providing for the consumer to receive compensation of an equivalent amount from the seller or supplier where the latter is the party cancelling the contract;
(e) requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation;
(f) authorising the seller or supplier to dissolve the contract on a discretionary basis where the same facility is not granted to the consumer, or permitting the seller or supplier to retain the sums paid for services not yet supplied by him where it is the seller or supplier himself who dissolves the contract;
(g) enabling the seller or supplier to terminate a contract of indeterminate duration without reasonable notice except where there are serious grounds for doing so;
(h) automatically extending a contract of fixed duration where the consumer does not indicate otherwise, when the deadline fixed for the consumer to express his desire not to extend the contract is unreasonably early;
(i) irrevocably binding the consumer to terms with which he had no real opportunity of becoming acquainted before the conclusion of the contract;
(j) enabling the seller or supplier to alter the terms of the contract unilaterally without a valid reason which is specified in the contract;
(k) enabling the seller or supplier to alter unilaterally without a valid reason any characteristics of the product or service to be provided;
(l) providing for the price of goods to be determined at the time of delivery or allowing a seller of goods or supplier of services to increase their price without in both cases giving the consumer the corresponding right to cancel the contract if the final price is too high in relation to the price agreed when the contract was concluded;
(m) giving the seller or supplier the right to determine whether the goods or services supplied are in conformity with the contract, or giving him the exclusive right to interpret any term of the contract;
(n) limiting the seller’s or supplier’s obligation to respect commitments undertaken by his agents or making his commitments subject to compliance with a particular formality;
(o) obliging the consumer to fulfil all his obligations where the seller or supplier does not perform his;
(p) giving the seller or supplier the possibility of transferring his rights and obligations under the contract, where this may serve to reduce the guarantees for the consumer, without the latter’s agreement;
(q) excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy, particularly by requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions, unduly restricting the evidence available to him or imposing on him a burden of proof which, according to the applicable law, should lie with another party to the contract.


Law Com proposes new unifying statute because of overlap between 1977 act and 1999 Regs

The Commission’s report notes the “particularly dense style” of the 1977 Act, and remarks that even specialist lawyers may find it difficult to follow. The draft Act already exists in the form of a 2005 Bill.