WS 3: Contents of a Contract - Exemption Clauses

Question 1

Incorporation by signature basic rule?

Answer 1

Basic rule that if you sign a contractual document then the clauses in that document will normally be incorporated as part of the contract (EVEN IF YOU DID NOT READ THE CLAUSES)

Question 2

L’Estrange v Graucob Ltd [1934]:

Answer 2

a. L’Estrange v Graucob Ltd [1934]: Facts: Graucob sold cigarette machine to L’Estrange. She signed contract which had small print excluding implied terms not included in contract. The machine soon broke down. Court of Appeal held she was bound by her signature: Clause must be
i. Legible [print was ‘regrettably small’ but still legible] and signed by the Claimant; and
ii. Contractual document

Question 3

Curtis v Chemical Cleaning [1951]

Answer 3

claimant took a wedding dress, trimmed with beads and sequins, to the D’s shop for cleaning. Assistant asked the C to sign a receipt. C asked why and assistant said it exempted the D from liability for damage to the beads and sequins. C signed. In fact, the receipt exempted the D from liability for any damage however caused. Dress returned and was stained. Court held that the D could not rely on the clause as its effects had been misrepresented to the C: If effect of the clause is misrepresented and the claimant has relied on the inaccurate description it will be invalid

Question 4

Cases stating rule on incorporation by notice

Answer 4

a. Chapleton v Barry Urban DC: The document containing the clause must be contractual in nature (Facts: deck chair ticket was not contractual in nature as a reasonable person would regard it as a mere receipt to show that the claimant had paid for the chair)
b. Parker v SE Railway (1877) – Court of Appeal: innocent party need not know of the clause provided the party seeking to rely on it had taken reasonable steps to draw the clause to the other’s attention: there must be:
i. Actual notice: i.e. The innocent party must know of the clause; or
ii. Constructive notice: i.e. the party relying on the clause must have taken reasonable steps to bring it to the others’ notice

Question 5

Spurling v Broadshaw Factors that determine whether steps were reasonable

Answer 5

• Position of clause in document
• Prominence
• Onerous or unusual

Question 6

Thornton v Shoe-Lane Parking

Answer 6

Exemption clause was onerous because the clause inside the car park claimed to exclude liability for personal injury. Onerous clauses must be explicitly drawn to the attention of the other party (Denning: red hand pointing to it in red ink)

Question 7

Interfoto Picture Library v Stiletto

Answer 7

The claimants ran a photographic transparency lending library. Ds asked if the claimants had any transparencies of the 1950s. Cs delivered 47 transparencies together with a delivery note containing various conditions. Condition 2 stated that all transparencies had to be returned by March 19, and £5 fine per day per transparency. Ds did not notice, and were 14 days late = £3783– HELD: onerous clause printed on foot of delivery note is not reasonable steps to bring to the other’s attention. Nothing had been done to draw attention of party
• Decision criticised as they were both businesses

Question 8

Olley v Marlborough Court [1949]

Answer 8

Timing of reasonable steps to give notice - The reasonable steps must occur before the contract is finalised

Question 9

Thornton v Shoe-Lane Parking - Timing of reasonable steps

Answer 9

o Thornton v Shoe-Lane Parking: Denning: offer at notice at entrance. Acceptance driving to ticket barrier to get ticket. Therefore, the conditions on the ticket and inside car park were too late to be incorporated. Gordon Willmer: At least when a person is selling to you, you have in theory the chance to object to conditions. He suggested all conditions should be put on prominent notice at the entrance to car park.

Question 10

Kendall v Lillico:

Answer 10

Must be consistent in both frequency and terms (dealt with each other 3-4 times a month for 3 years)

Question 11

Hollier v Rambler Motors

Answer 11

3-4 times in 5 years not frequent

Question 12

McCutcheon v David MacBrayne

Answer 12

Parties dealt with each other many times; sometimes the document was signed, sometimes it wasn’t. Therefore inconsistent dealings

Question 13

Houghton v Trafalgar Insurance [1954]

Answer 13

Contra Preferentem - (Facts: a 5 seater car was involved in an accident while carrying 6 people. Insurance company sought to rely on clause in insurance policy which exempted it from liability if car was carrying ‘excessive load’) if the clause is ambiguous or unclear the courts will interpret it against the a party relying on it

Question 14

How should an exemption clause for negligence be worded?

Answer 14

got to be carefully worded

a. Canada Steamship [1952]: Clause must:
i. Expressly exempt liability; or
ii. If no express reference to negligence, courts must decide whether the words are wide enough to exclude liability for negligence which doesn’t exclude other liability
iii. But doesn’t need to use word “negligence” necessarily

Question 15

Monarch Airlines v Luton Airport

Answer 15

Courts may take a more relaxed approach in commercial cases. Monarch Airlines v Luton Airport: paving stone causes damage to airplane. Judge said should not look to other liability potentially covered by the clause and construe it as this, but look at facts and realities at time of contract and ask what potential liability the parties had in mind.

Question 16

Can very serious breaches be covered?

Answer 16

Photo Products v Securicor Transport [1984] UKHL – if the exemption clause is clearly worded, v serious breaches can be covered. Simply a matter of construction

Question 17

What does UCTA apply to?

Answer 17

o S.1(3): things done in the course of business, not otherwise

Question 18

s.6 UCTA

Answer 18

o S.6: Breach of SGA – cannot exclude or restrict liability for breach of terms implied by ss13 and 14 as against a person ‘dealing as consumer’; valid against a business buyer provided satisfies the reasonableness test

Question 19

s.7 UCTA

Answer 19

o S.7: Breach of SGSA - cannot exclude or restrict liability for breach of terms implied by ss3 and 4 as against a person ‘dealing as consumer’; valid against a business buyer provided satisfies the reasonableness test

Question 20

s.2(1) UCTA

Answer 20

o S.2(1) – a business cannot exclude or restrict its liability for negligence where it causes death or personal injury

Question 21

s.2(2) UCTA

Answer 21

o S.2(2) – provides that other damage caused by negligence, a business can exclude or restrict its liability provided the exemption clause satisfies the reasonableness test

Question 22

s.3 UCTA

Answer 22

o S.3: breaches of express terms. Only applies where one party deals as consumer, or one party or one party deals on the other party’s written standard terms of business

Question 23

Effect of UCTA if it applies?

Answer 23

o Renders the exemption clause void; or

o Subjects it to the Reasonableness Test

Question 24

It must have been fair and reasonable to include the exemption clause having regard to the circumstances which…

Answer 24

• S.11(1) Reasonableness Test: It must have been fair and reasonable to include the exemption clause having regard to circumstances which:
o Were known; or
o Ought reaonably to have been known; or
o Were within the contemplation o the parties when the contract was made

Question 25

Burden of proof is on whom in UCTA?

Answer 25

• S.11(5) UCTA 1977 – burden of proof is on the party seeking to rely on the exemption clause to show that is reasonable

Question 26

Sch 2 guidelines

Answer 26

Sch. 2 Guidelines (specifically apply when considering the reasonableness test under ss.6 and 7):

a. Relative strength of the bargaining positions of the parties
b. Was there an inducement? i.e. was the customer offered a higher price for accepting a contract without an exemption clause? If so this may indicate that the clause was reasonable
c. Incorporated
d. Was it reasonable to expect that compliance would have been practicable?
e. Whether the goods were manufactured, processed or adapted to the special order of the customer

Question 27

What to consider when looking at reasonableness of limitation clauses?

Answer 27

s. 11(4) Guidelines: Court should have regard to -
a. The resources which the D could expect to be available to him for the purpose of meeting the liability
b. How far it was open to the D to cover himself by insurance

Question 28

Smith v Eric Bush guidelines

Answer 28

o Were the parties of equal bargaining power?
o Would it be reasonably practicable to obtain the advice from an alternative source?
o How difficult or dangerous was the task?
o What are the practical consequences? – sums at stake, ability of parties to bear the losses involved. Loss to house purchaser as a result of negligent info was huge.
• FOR THESE LASE TWO POINTS IN RED – there is no obvious overlap with the Sch 2 UCTA guidelines

Question 29

• St Albans City and District Council v International Computers [1995]

Answer 29

local authority buys computer system for collection of community charge. It mucks up costing a lot of money. Claimant was not a consumer but had dealt on D’s written standard terms of business. Company sought to rely on clause limiting liability to £100,000. Cs knew of the clause. Scott Baker J said s.3 UCTA relevant but the clause not reasonable (company was in good bargaining position; also looked at practical consequences of reasonableness).

Question 30

Facts of Smith v Eric Bush?

Answer 30

Respondent applied to a building society for a mortgage to enable her to purchase a house. Build soc instructed a firm of surveyors to inspect the house. The respondent signed an application form for the survey and paid for it. The form contained a disclaimer stating that the surveyor did not accept any responsitilbity for th accuracy of the report. Resp bought the house. Report was inacc and resp sued the surveyor in negligence. Surveyor tried to rely on disclaimer to exempt him from liability. HELD by HoL – s.2(2) UCTA applied, and disclaimer would only be valid if reasonable. IT WAS NOT REASONABLE:

Question 31

Schenkers v Overland Shoes

Answer 31

standard industry terms are generally reasonable

Question 32

Stewart Gill v Horatio Myer & Co [1992] Court of Appeal

Answer 32

when deciding whether a clause is reasonable, the clause must be considered as a whole. So the court cannot sever a clause to remove an unreasonable part of the clause. So the prudent draftsman will draft several distinct clauses, not just one large one.

Question 33

Watford Electronics v Sanderson

Answer 33

if a term has separate parts their reasonableness should be considered separately

Question 34

Thomas Witter v TBP

Answer 34

a clause that excluded liability for misrepresentation, could be read to include exclusion for fraudulent misrepresentation

Question 35

Phillips v Hylands

Answer 35

Phillips v Hyland – a clause was so wide that it could potentially exclude for death/injury (which is prohibited by UCTA). So should this make the clause void, even if the actual possibility of death/injury in that particular instance was very small?

Question 36

Skipskredittforeningen v Emperor Navigation

Answer 36

it was held that “court should not be too ready to focus on remote possibilities” when deciding whether a clause fails