Exemption clauses (Contract Terms)- FS

Question 1

What is an exemption clause in a contract?

Answer 1

A term that seeks to exclude or limit liability for breach of contract or negligence.

Question 2

What are the two common law requirements for a valid exemption clause?

Answer 2

1. The clause must be properly incorporated into the contract.
2. The clause must clearly cover the breach and loss alleged (construction).

Question 2

What are the three methods of incorporation for an exemption clause?

Answer 2

1. Signature on a document
2. Reasonable notice before or at time of contracting
3. Consistent and regular course of dealing

Question 3

What does the contra proferentem rule state?

Answer 3

Any ambiguity in an exemption clause will be interpreted against the party relying on it (the proferens).

Question 4

What is the three-stage test from Canada Steamship for clauses seeking to exclude liability for negligence?

Answer 4

1. Does the clause expressly mention negligence or a synonym?
2. Are the words wide enough to cover negligence?
3. Is the clause too wide (i.e., also covers other liabilities)?

Question 5

What types of exemption clauses are prohibited under the Unfair Contract Terms Act 1977 (UCTA)?

Answer 5

• Exclusion of liability for death or personal injury due to negligence (s.2(1))
• Exclusion of implied term that seller has right to sell (s.6(1)(a))

Question 6

What is the UCTA reasonableness test (Section 11)?

Answer 6

A term must be fair and reasonable in light of the circumstances known to the parties at the time the contract was made.

Question 7

What factors influence UCTA’s reasonableness test?

Answer 7

• Relative bargaining power
• Inducement (e.g., lower price)
• Knowledge of the term
• Practicability of compliance
• Customization of goods to the buyer’s specification

Question 8

What do Sections 10 and 13 of UCTA prohibit?

Answer 8

• Section 10: Use of a secondary contract to exclude liability in the first
• Section 13: Imposing onerous conditions or limiting legal remedies to avoid liability

Question 9

What key protections are provided under the Consumer Rights Act 2015 (CRA) for exemption clauses?

Answer 9

• Prohibits exclusion of liability for death/personal injury due to negligence (s.65)
• Prohibits exclusion of liability for breach of implied terms (e.g. satisfactory quality – s.31)
• Terms must be fair, transparent, and prominent (s.62–64)

Question 10

What makes a term “unfair” under Section 62 of the CRA 2015?

Answer 10

If it causes a significant imbalance in the parties’ rights and obligations to the detriment of the consumer, contrary to good faith.

Question 11

What are the CRA anti-avoidance provisions?

Answer 11

• Section 72: Prevents parties from using parallel contracts to avoid CRA
• Section 32(2): Prevents limiting liability by procedural or evidentiary means

Question 12

What are the three key questions to assess an exemption clause’s enforceability?

Answer 12

1. Has the term been validly incorporated?
2. Does the clause cover the breach and loss in question?
3. Is the clause prohibited or restricted by UCTA or CRA?

Question 13

What types of liability can exemption clauses cover?

Answer 13

Exemption clauses can exclude or limit liability for contractual breaches, tort (including negligence), or both.

Question 14

When are courts less likely to apply the contra proferentem rule?

Answer 14

When the parties are of equal bargaining power, particularly in commercial contracts.

Question 15

Under CRA 2015, can traders exclude liability for poor service performance?

Answer 15

No. Section 49 implies a duty to perform with reasonable care and skill, and Section 57 prohibits excluding this. Liability can be limited but not below the price paid.

Question 16

What is the difference between exclusion and limitation clauses?

Answer 16

Exclusion clauses remove liability entirely; limitation clauses cap liability at a specific amount.

Question 17

Can an exemption clause fail if it omits relevant coverage areas?

Answer 17

Yes. If a clause does not explicitly cover the area where liability arose, courts may exclude it using contra proferentem.

Question 18

What does Section 3 of the Unfair Contract Terms Act 1977 regulate?

Answer 18

It restricts exclusion of liability when one party is dealing on the other’s standard written terms, unless the clause is reasonable.

Question 19

What are key factors courts consider when assessing UCTA reasonableness?

Answer 19

• Relative bargaining power
• Inducements (e.g., discounts)
• Awareness of the term
• Whether compliance was practical
• Whether goods were customised for the buyer

Question 20

What does Section 57 of the Consumer Rights Act 2015 prohibit?

Answer 20

Limiting liability for poor service performance to less than the amount paid by the consumer.

Question 21

What does Section 64 of the CRA 2015 say about core terms like price and subject matter?

Answer 21

They are not subject to fairness review if they are transparent and prominent.

Question 22

What is the effect of a term being found “unfair” under Section 62 CRA?

Answer 22

The term is not binding, but the rest of the contract can continue in force.

Question 23

Give an example of an unfair term under CRA Schedule 2.

Answer 23

A term allowing the trader to unilaterally increase prices without giving the consumer the right to cancel.