1-2. Exemption Clauses

Question 1

EXEMPTION CLAUSES

Answer 1

Def: a contractual term which purports to LIMIT or EXCLUDE liability which would otherwise attach to one of the contracting parties (Photo Productions v Securicor)

Proferens: the person seeking to rely on the ExC.

An ExC must satisfy the following criteria:

• INCORPORATION
• CONSTRUCTION

Question 2

ExC: INCORPORATION

Answer 2

There are three methods of incorporation:

• SIGNATURE
• R NOTICE
• CONSISTENT AND REGULAR COURSE OF DEALING

Question 3

ExC: Incorporation - SIGNATURE

Answer 3

GR: a signature will bind the signing party (L’Estrange v Graucob). It is IMMATERIAL whether the signing party reads the document or not.

EX 1: where document is not contractually binding (Grogan v Robin Meredith Plant)

EX 2: Misrep of the clause
- an ExC will be invalid where one party misreps it’s meaning (Curtis v Chemical Cleaning)

EX 3: where the defence of NON EST FACTUM applies (Saunders v Anglia Building Society)
- Doctrine: where a party signs and is mistaken as to its meaning/effect, not bound by the contract provided they are mistaken by NO FAULT OF THEIR OWN.

Question 4

ExC: Incorporation - R NOTICE

Answer 4

1. the proferens must take R steps to bring the term to the other party’s notice (Parker v South Eastern Railways)
   - clause will not be incorporated if illegible (Sugar v London Railway)
   - if one party is aware that the other is unable to read, merely handing over a document will NOT constitute R notice (Harvey v Oelde)
   - if the ExC is on the reverse of a doc, it MUST be referred to on its face (Henderson v Stevenson)
2. A term can be incorporated by reference to another document (Thompson v London Railway; O’Brien v MGN)
3. Notice must be given to the other party BEFORE or AT THE TIME of contracting (Olley v Marlborough Court; Thornton v Shoe Lane Parking)
4. Greater notice is required for unusual or onerous clauses (Thornton v Shoe Lane Parking; Interfoto v Stiletto)
   - particularly onerous clauses must be brought into notice through extra measures. EG printing the clause in red ink (Spurling v Bradshaw per Denning LJ)
   - NB, a signature will generally incorporate onerous clauses (Chemical Transport v Exnor Craggs)
5. The written document or notice containing the ExC must have contractual effect
   - a document merely evidencing contractual performance is insufficient (Grogan v Meredith)
   - a document will have contractual effect if:
   - – its NATURE is of the sort to contain contractual terms, AND
   - the CIRCUMSTANCES are such that delivery of the document constitute R notice to the terms that are contained therein, OR
   - the document is one that could R be expected to have contractual force by either:
   - – the person to whom it was handed (Chapelton v Barry), OR
   - – a R person.

Question 5

ExC: Incorporation - CONSISTENT AND REGULAR COURSE OF DEALING

Answer 5

A clause may be incorporated through a course of dealing if the course of dealing is both consistent and regular (McCutcheon v MacBrayne)

• 5 times in 13 months WAS sufficiently regular (Petrograde v Texaco)
• 3 or 4 times a month for 3 years WAS sufficiently regular (Henry Kendall v William Lillico OBITER)
• 3 or 4 times over 5 years as INSUFFICIENT (Hollier v Rambler Motors)

Question 6

ExC: CONSTRUCTION

Answer 6

Could be regarded as interpretation also.

TEST: the clause must cover the breach “on its natural and ordinary meaning” (George Mitchell v Finney Lock Seeds)

The following rules apply:

1. CONTRA PROFERENTUM: where ambiguity exists in a clause it will be interpreted AGAINST the proferens (Andrew Brother v Singer; Houghton v Trafalgar Insurance)
   - applied less strictly to limitation clauses than it is to exemption clauses (Alisa Craig v Malvern Fishing Co)
2. EXCLUSION OF LIABILITY FOR NEGLIGENCE
   (Canada Steamship): an ExC may exclude liability for negligence where it satisfies the following TEST:
   - is negligence or a synonym of it specifically referred to in the clause? (Monarch Airlines v Luton Airport)
   -if NO, is the clause wide enough to cover negligence?
   — words of clause interpreted along their ordinary meanings.
   — if YES, is it too wide? Where a clause is seeking to exclude or limit on a ground OTHER THAN negligence, will be determined to cover that ground and NOT negligence. UNLESS the other ground is so fanciful that it is unR to believe the proferens expected the clause to cover it (White v Warwick cf. Alderslade v Hendon).
   — where a clause covers liability for both contractual duties and tortious negligence, will ONLY exclude contractual liability, not tortious.
   - if YES, or wide enough to cover neg but not too wide, the clause will exclude negligence
   - NB, these are only guidelines, not rigid rules (HIH Casualty and General v Chase Manhattan Bank)

Liability for a fundamental breach of contract may be excluded by the parties provided that (Photo Productions v Securicor):

• the clause can be interpreted as covering the breach, AND
• it is compliant with statutory regulation

A party to a contract can exempt third parties from liability (s.1(6) Contract (Rights of Third Parties) Act 1999)

Question 7

ExC: STATUTORY REGULATION

Answer 7

If validly incorporated and construed, an ExC must also comply with REQ imposed by statutory regulation. The applicable regime depends on whether the contract is:

• B2C, or
• B2B

Question 8

ExC: Statutory Regulation - B2C CONTRACTS

Answer 8

CRA 2015, to apply, the contract must be between a TRADER and a CONSUMER (s.61(1))

SCOPE OF PART 2 CRA 2015

• type of liability covered: tortious AND contractual
• contractual notices covered: yes
• contracts covered: B2C and negotiated/non-negotiated
• burden of proof: on proferens
• Contract terms: covers ALL contractual terms

EXCLUSION OF LIABILITY
CRA distinguishes between exclusion of liability for negligence and implied terms

” for NEGLIGENCE (s.65)

• Includes the breach of:
• – (4)(a) any obligation to take R care or exercise R skill in the performance of a contract where the obligation arises from an express or implied term of the contract.
• – (4)(b) a common law duty to take R care or exercise R skill
• – (4)(c) the common duty of care imposed by the OLA 1957.
• (1) Liability may NEVER be excluded or restricted for death or PI as a result of negligence

” for IMPLIED TERMS (s.31 and 57)

s. 31: any term attempting to exclude or restrict a trader’s liability arising under any of the following will NOT be binding on the consumer:
- (a) goods to be of satisfactory quality (s9)
- (b) goods to be fit for a particular purpose (s10)
- (c) goods to be as described (s11)
- (e) goods to match sample (s13)
- (i) trader to have the right to sell (s17)
s. 57: (1) any term attempting to exclude trader’s liability under s.49 will not be binding on the consumer
- (3) any term attempting to restrict trader’s liability under s.49 will not be binding on the consumer to the extent that it:
- would prevent the consumer from recovering the price paid, and/or is unfair under s.62.

FAIRNESS REQUIREMENT: a term is unfair if, contrary to the req of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer (s.62(4)).
- (5) Whether a term is to be fair is to be determined:
— taking into account the nature of the SUBJECT MATTER of the contract, AND
— by reference to ALL CIRCUMSTANCES existing when the term was agreed.
- (3) a consumer can still rely on an unfair term if he chooses to do so
- (1) Part 1 of Schedule 2 CRA contains a non-exhaustive list of unfair terms.
EFFECT of an unfair term
- Will NOT be binding on a consumer (s.62(1)), AND
- the contract will continue, so far as practicable, to have effect in every other respect.

Question 9

ExC: Statutory Regulation - B2B CONTRACTS

Answer 9

Unfair Contract Terms Act 1977 (UCTA)

1. REQ to apply
   Business liability (s.1(3)
   - the clause must exempt business liability
   - Def: liability for breach of obligations or duties arising:
   — (a) from things done or to be done by a person IN THE COURSE OF BUSINESS, OR
   — (b) from the OCCUPATION OF PREMISES used for the business purposes of the Occ

Exemption Clauses (s.13)

• the clause must be an ExC, UCTA ONLY applies to ExC.
• may be individually or non-individually negotiated (s.1(3))

2. UCTA’S SCOPE
   - type of liability covered: tortious AND contractual
   - contractual notices covered: YES
   - Contracts covered: B2B and C2C
   - Burden of Proof: on the proferens
   - Contract terms: ExC ONLY
3. EXCLUSION OF LIABILITY
   FOR NEGLIGENCE (s.1)
   - (1)(a) any obligation to take R care or exercise R skill in performing a contract
   - (1)(b) any common duty to take R care or exercise R skill.
   - (1)(c) the common duty of care imposed by OLA 1957
   Liability may NEVER be excluded/restricted for death or PI resulting from negligence (s.2(1)
   Negligence MAY be excluded/restricted for any other loss or damage in so far as it is R (s.2(2) see reasonableness card)
   FOR CONTRACTUAL LIABILITY (s.3)
   - (1) Where one contractual party is a consumer OR a party deals on the other’s written standard terms of business, NEITHER can:
   — (2)(a) exclude/restrict liability by reference to any contract term when they themselves are in breach, OR
   — (2)(b) claim, UNLESS the contract term satisfies the R TEST, to be entitled:
   — (i) to render a contractual performance substantially different form that which is R expected of them
   — (ii) to render no performance at all in respect to the whole or any part of his contractual obligation.
   FOR IMPLIED TERM
   - terms implied by the SGA 1979
   — (1)(a) s.12 may NEVER be excluded
   — (2)(a) ss.13-15 MAY be excluded/restricted against BUSINESSES insofar as it is R (3).
   - terms implied by SGSA 1982
   — a supplier may contract out of the implied terms for the supply of services, subject to s.16 SGSA.
   — any exclusion will be subjected to the R TEST under UCTA 1977.

THE REASONABLENESS TEST (s.11 and Schedule 2)
TEST: a term will be R where it was or ought R to have been known or in the contemplation of the parties when the contract was made (s.11(1))
— what is R depends on the circumstances fo the case (George Mitchell v Finney Lock Seeds)
Burden of Proof: on the person claiming that the term is R (s.11(5))
GUIDELINES (Schedule 2)
Whether an ExC is R will depend on:
- the RELATIVE STRENGTH of BARGAINING POSITIONS between the parties at the time of contracting
— an ExC is more likely to be R when equal bargaining power (Watford Electronics v Sanderson)
- whether customer received an INDUCEMENT to agree
- whether customer KNEW or OUGHT to have known of the existence and extent of the term
- whether the ExC relies upon some CONDITION not being complied with and if that’s R to expect
- whether goods manufactured, processed or adapted to SPECIAL ORDER of customer.

CONSUMER (s.12(1))

• A party will be a ‘consumer’ if he satisfies both of the following criteria:
• – (a) they do not make the contract in the COURSE OF BUSINESS or hold themselves out as doing so
• – (b) the other party makes the contract in the course of business
• (c) in addition, if the contract is governed by the law of sale of goods or hire-purchase or by s.7, the goods in the contract must be a type ordinarily supplied for private use or consumption