Exemption Clauses and Unfair Clauses Flashcards
what is an exemption clause?
a contractual term that purports to limit or exclude liability (contractual / tortious) that would otherwise attach to one of the contractual parties
what 3 questions must be asked when considering whether a party can rely on an exemption clause?
(1) has it been validly incorporated into the contract?
(2) is it drafted so as to cover the alleged breach and resulting loss? (construction)
(3) is it rendered unenforceable by the Unfair Contract Terms Act 1997 or the Consumer Rights Act 2015?
how can the exemption clause be validly incorporated into a contract?
(1) signed written document intended to have contractual effect
(2) incorporated by giving reasonable notice:
- exemption clauses are onerous so it must be prominently displayed for reasonable notice to have been given
- it must be given before or at the time of contracting
- it must be on a document that is intended to have contractual effect
(3) incorporation by a course of dealing
what is the general rule for construing whether an exemption clause covers the alleged breach and resulting loss?
exemption clauses are construed contra proferentem - if there is any doubt as to the meaning and scope of the clause, this is resolved against the party seeking to rely on it
but court are less likely to read an exemption clause contra proferentem between commercial parties of equal bargaining position
can an exemption clause be construed as excluding / limiting liability for negligence? (2 different scenarios)
(1) if the clause specifically and clearly refers to negligence then the clause will be construed to exclude liability for negligence
(2) if the clause does not specifically refer to negligence but is drafted wide enough to cover all liability including negligence, then:
- it is construed to cover liability for negligence only if negligence is the only basis for liability and there is no other ground on which the head of damage could be based on
- it is not construed to cover liability for negligence if the party will be liable irrespective of negligence (i.e., clause is too wide and covers other types of liability like contractual)
when and how do the Unfair Contract Terms Act 1977 and / or the Consumer Rights Act 2015 apply when considering whether a breaching party can rely on an exemption clause?
if an exemption clause is incorporated validly and construed to cover the alleged breach and resulting loss, the statutes may preclude it from excluding liability of the breaching party
UCTA 1977 applies to exemption clauses in business to business contracts
CRA 2015 applies to exemption clauses in business to consumer contracts
UCTA: can an exemption clause exclude liability for death or personal injury resulting from negligence?
no - clause will be void
UCTA: can an exemption clause exclude liability for breach of a statutory implied term on title to goods?
no - clause will be void
UCTA: can an exemption clause exclude liability for loss or damage resulting from negligence (other than death or PI)?
yes only if the clause is reasonable
UCTA: can an exemption clause exclude liability for breach of SGA implied terms as to quality or fitness of goods?
yes only if the clause is reasonable
UCTA: can an exemption clause exclude liability for breach of an express term in the contract?
2 different cases
(1) If the contract is based on written standard terms of business = a party can rely on an exemption clause in its own standard terms to exclude its own liability only if reasonable
(2) If the contract is negotiated other than standard terms = UCTA does not apply to limit a party’s ability to rely on an exemption clause to exclude liability for breach of express terms (but UCTA does apply to exemption clauses excluding liability for loss resulting from negligence and breach of implied terms)
UCTA: when will an exemption clause be considered ‘reasonable’ to be enforceable?
test and factors to consider (6)
test =
it was FAIR AND REASONABLE to include the term having regard to the circumstances which were known, ought to have been known, or in the contemplation of the parties AT THE TIME OF CONTRACTING
factors to consider =
(1) strength of bargaining position of parties
(2) alternative means by which the customer’s requirements could have been met
(3) if the customer was induced to agree to the term, or whether in accepting had an opportunity to enter into similar contracts with other persons without a similar term
(4) whether the customer should have reasonably known of the existence of the term considering prior course of dealings and trade customs
(5) if the term excludes liability if some condition is not complied with, whether it was reasonable to expect practicable compliance with the term at the time of contracting
(6) whether goods were manufactured, processed, or adapted to the special order of the customer
what type of clauses does CRA regulate?
exemption clauses AND other unfair terms
CRA: can a trader exclude liability for death or personal injury resulting from negligence?
no - clause will be void
CRA: can a trader exclude liability for breach of implied terms as to quality or fitness of goods?
no - clause will be void
