Unit 3 Part 2

Question 1

Exemption Clauses

Answer 1

Contract terms excluding or limiting liability for breach or tort. Includes limitation clauses and clauses restricting remedies.

To protect a party from the full legal consequences of their breach or tortious act.

Question 2

Exemption Clauses Common Law Rules: Incorporation

Answer 2

Exemption clause must be incorporated into the contract to be binding. Three ways: signature, notice, course of dealing.

Question 3

Liability Prerequisite

Answer 3

Exemption clause only relevant if a breach or tort has occurred, establishing potential liability.

Question 4

Incorporation by Signature: General Rule

Answer 4

Signing a contractual document generally binds party to all clauses, even if unread.
Case: L’Estrange v Graucob

Question 5

Incorporation by Signature - Exceptions

Answer 5

Illegibility: Clause physically illegible.

Misrepresentation of Effect: Party relying misrepresented clause’s effect and other party reasonably relied.
Case: Curtis v Chemical Cleaning

Unusual & Onerous: Clause particularly unusual/onerous and not fairly/reasonably drawn to attention.

Question 6

Incorporation by Notice - General

Answer 6

Applies to unsigned documents (tickets) or notices.

Question 7

Incorporation by Notice - Conditions

Answer 7

Document must be contractual in nature.
Case: Chapelton v Barry UDC (deck chair ticket not contractual)
Innocent party must know of clause OR relying party took reasonable steps to bring it to notice.
Case: Parker v South Eastern Railway

Question 8

Incorporation by Notice - Reasonable Steps

Answer 8

Objectively judged:

• Position of the clause: Is it clearly visible? If on the back, is there a clear reference on the front? ‘for conditions see over’
• Prominence of clause: Is the clause highlighted or easily readable?
• Nature of clause: Is it standard or particularly unusual/onerous? More effort is required to notify of unusual or onerous clauses.

Question 9

Spurling Ltd v Bradshaw [1956] 1 WLR 461, CA:

Answer 9

Lord Denning famously stated that for an onerous or unusual clause, it might need to be “printed in red ink with a red hand pointing to it or something equally startling” to be incorporated by notice.

Question 9

Incorporation by Notice - Timing

Answer 9

Notice generally must occur before contract is finalised.
Case: Olley v Marlborough Court (hotel bedroom notice too late)

Exception: Previous consistent course of dealing.

Question 10

Incorporation by Previous Consistent Course of Dealing

Answer 10

Term used in past consistent dealings may be impliedly incorporated. Dealings must be consistent and amount to a course of dealing (sufficient number/regularity).

Cases: Spurling v Bradshaw, Kendall v Lillico, Hollier v Rambler Motors, McCutcheon v David MacBrayne (inconsistent signing negated course of dealing)

Question 11

McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125, HL:

Answer 11

Despite many previous dealings, the course of dealing was inconsistent because sometimes the document containing the exemption clause was signed, and sometimes it was not. Therefore, the clause was not incorporated on this basis.

Question 11

Spurling Ltd v Bradshaw [1956] 1 WLR 461, CA:

Answer 11

An exemption clause on a receipt sent after the contract was formed was incorporated due to the parties’ many previous dealings where similar receipts were used.

Question 12

Construction of Exemption Clauses

Answer 12

Even if incorporated, clause must be interpreted to cover the specific breach and loss.

Question 13

Construction: Contra Proferentem

Answer 13

Ambiguous clause interpreted against the party relying on it. Applies to any ambiguous clause.
Case: Houghton v Trafalgar Insurance (“excessive load” ambiguous for passengers)

Question 14

Construction Principle 2 - Exemption Clauses and Negligence (General)

Answer 14

Special care is required in the wording of an exemption clause if it is intended to cover liability for negligence (either in tort or as a negligent breach of contract).

Question 15

Exemption Clauses and Negligence -

Answer 15

Guidelines from Canada Steamship Lines v The King:

Express Reference: If the clause expressly mentions “negligence” or a clear synonym, it will generally be effective in excluding liability for negligence.

Wide Enough Wording: If there is no express mention of negligence, the court will consider if the words used are wide enough to cover negligence (e.g., phrases like “however caused” or “any loss whatsoever”). If they are not wide enough, negligence liability is not excluded.

If words wide enough, could clause cover other liability besides negligence (e.g., strict liability)? If so, may be interpreted as applying only to that other liability.

Question 16

Modern Approach: Commercial Negligence

Answer 16

Less strict Canada Steamship guideline 3. Consider potential liabilities parties likely had in mind based on context.
Case: Monarch Airlines v London Luton Airport (“omission, neglect or default” covered negligence)

Question 17

Exemption Clauses and Serious Breaches

Answer 17

Historically, courts were reluctant to allow exemption clauses to cover very serious breaches. Primarily matter of construction now. If clearly and unambiguously worded, can exclude liability even for serious/deliberate breach.
Case: Photo Productions v Securicor

Question 18

Construction: Limitation Clauses

Answer 18

May be construed less strictly than total exclusion clauses, as parties more likely to agree to limits. Interpretation still depends on wording.

Question 19

Unfair Contract Terms Act 1977 (UCTA)

Answer 19

UCTA 1977 is a statutory regime that regulates the use of exemption clauses, primarily in business-to-business (B2B) contracts

Question 20

UCTA: Scope

Answer 20

Regulates clauses excluding/limiting liability, making it subject to onerous conditions, or covers prejudice against a person for pursuing a right or remedy (s. 13). Excludes trader-to-consumer contracts (now CRA 2015). Applies to business liability (s. 1(3)).

Question 21

UCTA: Effect

Answer 21

Renders clause void or subjects it to a reasonableness test (s. 11 & Sch. 2).

Question 22

UCTA: Excluded Contracts

Answer 22

Schedule 1 lists certain types of contracts to which the key provisions of UCTA 1977 do not apply.

Examples include:
Contracts of insurance.
Contracts related to the creation, transfer, or termination of an interest in land.
Crucially, as mentioned, it excludes trader-to-consumer contracts (now under CRA 2015).

Question 23

Sections 6 and 7: Exclusion of Liability for Implied Terms in Goods Contracts (SGA 1979 & SGSA 1982):

Answer 23

These sections regulate clauses attempting to exclude or limit liability for breach of the terms implied into goods contracts by the SGA 1979 and SGSA 1982 (specifically, those implied in B2B contracts or those outside of trader-consumer scope).

Question 24

SGA 1979 Implied Terms Covered (ss. 13, 14(2), 14(3)) by UCTA

Answer 24

S. 13: In a sale of goods by description, a condition is implied that goods will fit with description. S. 14(2): Satisfactory quality (where seller sells in the course of a business). S. 14(3): Fitness for purpose (where seller sells in the course of a business and purpose made known). Effect of UCTA S. 6 on these terms: A seller can only exclude or restrict liability for breach of these implied terms if the exemption clause satisfies the reasonableness test.

Question 25

SGSA 1982 Implied Terms Covered (ss. 3, 4(2), 4(5)) by UCTA:

Answer 25

S. 3: Correspondence with description (goods transferred). S. 4(2): Satisfactory quality (goods supplied in course of business). S. 4(5): Fitness for purpose (goods supplied in course of business and purpose made known). Effect of S. 7 on these terms: Liability for breach of these implied terms can only be excluded or restricted if the exemption clause satisfies the reasonableness test.

Question 26

UCTA s. 2: Negligence Liability

Answer 26

Section 2(1): Death or Personal Injury: A business cannot exclude or restrict its liability for negligence that causes death or personal injury. Any such clause is void. Section 2(2): Other Loss or Damage: For negligence causing other types of loss or damage (e.g., property damage, economic loss), a business can exclude or restrict its liability, but only if the exemption clause satisfies the reasonableness test.

Question 27

UCTA s. 3: Breach of Express Terms

Answer 27

Applies when one party deals on the other's written standard terms of business. Exclusion/restriction of liability for breach of express term only valid if clause satisfies reasonableness test. If s. 3 does not apply (i.e., the contract is not on written standard terms of business), a clause excluding or restricting liability for breach of an express term is valid if it satisfies the common law rules of incorporation and construction; it is not subject to the UCTA reasonableness test.

Question 28

The Reasonableness Test (UCTA s. 11)

Answer 28

Exemption clause must be fair and reasonable to have been included at contract formation. This is assessed based on the circumstances that were known (or ought reasonably to have been known or contemplated) by the parties when the contract was made. The assessment is forward-looking, based on the situation at the time of contracting, not the consequences of the breach.

Question 28

Reasonableness Test - Burden of Proof (s. 11(5))

Answer 28

Party relying on the exemption clause must prove it is reasonable.

Question 29

Reasonableness: Assessment Timing

Answer 29

The court considers factors known or contemplated at the time the contract was made.

Question 30

Schedule 2 Guidelines

Answer 30

These guidelines formally apply when assessing reasonableness under ss. 6 and 7

Question 31

Reasonableness: Schedule 2

Answer 31

(a) The relative strength of the bargaining positions of the parties: If bargaining power is equal (e.g., experienced businessmen representing substantial companies), clauses are more likely to be considered reasonable (Watford Electronics v Sanderson CFL Ltd [2001] EWCA Civ 317; Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371). Unequal power = less likely. (b) Did the customer receive an inducement or have an alternative? Was the customer offered a lower price for accepting the clause? (Suggests reasonableness). Did the customer have the opportunity to enter into a similar contract elsewhere without having to accept a similar exemption clause, but chose not to? (May suggest the clause is reasonable). (c) Customer's knowledge (actual or constructive) of the clause: Did the customer know, or ought they reasonably to have known, of the existence and extent of the clause? This includes considering trade custom and previous dealings between the parties (relates to incorporation principles). A clearly worded and set out clause is more likely to be considered reasonable as the customer should have been aware of it. (d) Practicability of complying with a condition: If clause conditional (e.g., notification period), was compliance reasonable at contract formation? (e) Special Order Goods: Were the goods manufactured, processed, or adapted to the special order of the customer? (This factor is listed but not elaborated upon in the text).

Question 32

Reasonableness: Limitation Clauses (s. 11(4))

Answer 32

Consider: Resources of limiting party to meet liability. Extent to which limiting party could insure against risk. (Often alongside Smith v Eric Bush).

Question 33

Reasonableness: Smith v Eric Bush - particularly in cases involving negligence or a duty of care and skill.

Answer 33

Factors for disclaimers/exclusions of negligence liability: Equal bargaining power? (Sch 2 overlap) Reasonably practicable to obtain service elsewhere? (Similar to Sch 2) Difficulty of task? (Additional) Practical consequences of decision (potential sums, parties' ability to bear loss, insurance)? (Additional)

Question 34

Reasonableness: St Albans v ICL

Answer 34

Limitation clause unreasonable due to unequal power, limited alternatives, supplier's high insurance vs. low cap, and loss falling on taxpayers.

Question 35

Reasonableness: Whole vs. Part (Recent)

Answer 35

Watford v Sanderson: Clause can be split if serving distinct purposes. Goodlife v Hall Fire: More liberal, upheld clause despite potentially void part.

Question 36

Reasonableness: Drafting

Answer 36

Draft multiple, distinct clauses for separate issues. Aim for reasonableness in each part.

Question 37

Consumer Rights Act 2015 (CRA)

Answer 37

Consolidates consumer rights/remedies in trader-consumer contracts. Regulates implied terms and exclusion/limitation of liability. Part 2 deals with unfair terms.

Question 38

CRA s. 31: Non-Excludable Liability (Goods)

Answer 38

Liability for breach of ss. 9 (satisfactory quality), 10 (fitness for purpose), 11 (as described) cannot be excluded or restricted. Includes preventing obligation, limiting extent, restricting remedies, onerous conditions, disadvantaging consumer for pursuing rights, or Exclude or restrict rules of evidence or procedure related to these rights.

Question 39

CRA s. 57: Exclusion of Liability (Services)

Answer 39

Exclusion of Liability for Care and Skill (s. 57(1)): A trader generally cannot exclude liability for breach of the implied term to perform a service with reasonable care and skill (s. 49). Restriction of Liability (s. 57(3)): A trader cannot restrict liability for breach of s. 49 (reasonable care and skill) and, where they apply, ss. 51 (reasonable price) and 52 (reasonable time), if this would prevent the consumer from getting a refund in an appropriate case.

Question 40

Impact on Rights and Remedies (s. 57(4)): A term is not binding on the consumer if it seeks to:

Answer 40

Exclude or restrict a right or remedy for breaches of ss. 49-52. Make such a right, remedy, or its enforcement subject to a restrictive or onerous condition. Disadvantage a person for pursuing such a right or remedy. Exclude or restrict rules of evidence or procedure related to these rights.

Question 41

CRA Part 2: Unfair Terms

Answer 41

Unfair term in trader-consumer contract not binding. "Unfair" = contrary to good faith, significant imbalance to consumer's detriment. Assessed at contract formation. Exemption clauses can be unfair. Main subject matter/price generally excluded from fairness assessment. Schedule 2 indicative list of unfair terms.

Question 42

Exemption Clauses & Third Parties: Common Law

Answer 42

Traditionally, privity of contract prevented third parties from being protected by exemption clauses. Case: Adler v Dickson (master/boatswain couldn't rely on shipping company's clause). Third party can only rely on exemption clause if it's valid under relevant law (common law incorporation/construction, UCTA 1977/CRA 2015).

Question 43

Exemption Clauses & Third Parties: Act 1999

Answer 43

Allows third party to enforce a contract term (including exemption clause) if: Expressly stated (s. 1(1)(a)). Term purports to confer a benefit (s. 1(1)(b)) - unless parties didn't intend enforceability (s. 1(2)). Third party expressly identified (s. 1(3)). Act explicitly extends to limiting third party's liability (s. 1(6)).