7. Exclusion Clauses

Question 1

What is an exclusion clause?

Answer 1

A term of a contract that attempts to exclude/limit liability of one of the parties

Question 2

What three criteria must be satisfied for an exclusion clause to be valid?

Answer 2

The clause must:

1. Have been incorporated into the contract
2. Be properly drafted so it is construed as excluding the actual, exact liability (i.e. harm suffered) effectively, and
3. Not be prohibited by statute

Question 3

At what time must an exclusion clause be incorporated into a contract?

Answer 3

At the time or before the contract is concluded

Question 4

What are the three ways an exclusion clause, and any clause for that matter, can be incorporated into a contract?

Answer 4

1. By signature
2. By notice
3. Through custom or previous dealings

Question 5

Why does a signature incorporate a term?

Answer 5

Because a party who signs a contractual document is generally bound by its terms

Question 6

What are two situations in which the incorporation by signature rule will not apply?

Answer 6

1. Inducement by oral misrepresentation
2. Non est factum

Question 7

What is the inducement by oral misrepresentation exception to the incorporation by signature rule?

Answer 7

Where a party is induced to enter into the contract by an oral misrepresentation, this will be deemed to override the written contractual terms

Question 8

What is the non est factum exception to the incorporation by signature rule, and what is required to avail of it?

Answer 8

The party is deemed to have no understanding of the document they have signed because of a fundamental difference between what they signed and what they thought they were signing

Question 9

What is required from a party regarding the incorporation of an exclusion clause by way of notice?

Answer 9

The party seeking to rely on incorporation by notice must have taken reasonable steps (based on the nature of the clause) to bring it to the attention of the other party.

Example: It is not considered notice, when you check-in to a hotel and then after entering your room you become aware about an exclusion clause for lost or stolen property, as the contract was made at the moment of check-in at the counter and not when entering the room.

Question 10

Does the innocent party being illiterate/unable to read the exclusion clause have any relevance to its incorporation by notice?

Answer 10

No

Question 11

What is the contractual document requirement in relation to incorporation by notice?

Answer 11

The clause must have incorporated/referred to a document intended to have contractual effect.

A receipt, for example, would be insufficient, as it is provided after the contract is concluded.

On the other hand, a train ticket is usually assumed to have contractual effect because it is provided at the time that the contract is concluded.

Question 12

What is the timing requirement for the notice in the context of incorporation by notice?

Answer 12

At the time or before the contract was concluded

Question 13

What is required of the course of dealings between the parties if an exclusion clause is to be incorporated in this way?

Answer 13

It must be regular and consistent

Question 14

What is the effect of the contra proferentum rule?

Answer 14

Any ambiguity when interpreting an exclusion clause (or any clause) will be interpreted against the party seeking to rely on it

Question 15

What is the scope (Anwendungsbereich) the Unfair Contract Terms Act 1977 when it comes to exclusion clauses?

Answer 15

Business to business contracts only

Question 16

Under UCTA, what is the fate of a clause which attempts to exclude liability for death or personal injury caused by negligence (in tort or under contract)?

Answer 16

Automatically void

Question 17

Under UCTA, what is the fate of a clause which attempts to exclude liability for any other loss caused by negligence (in tort or under contract)?

Answer 17

Void, unless reasonable

Question 18

Under UCTA, what implied condition under statute cannot be excluded?

Answer 18

Implied condition as to title

(Sale of Goods Act 1979 or Supply of Goods and Services Act 1982)

Question 19

Under UCTA, breach of obligations as to compliance with what three things cannot be excluded, unless reasonable?

Answer 19

1. Description
2. Quality
3. Fitness for purpose

(SOGA 1979 or SGSA 1982)

Question 20

Under UCTA, if a party contracts on its standard terms and conditions, what are three terms they cannot rely on, unless reasonable?

Answer 20

Terms which:

1. Exclude liability for breach of contract
2. Reserve the right to render contractual performance substantially different from what was expected
3. Render no contractual performance at all

Question 21

How could the reasonableness requirement under UCTA be described?

Answer 21

The term should be a fair and reasonable one to include having regard to the circumstances which were or ought reasonably to have been known or in the contemplation of the parties when the contract was made

Question 22

What are five factors among which the court will consider in determining whether the term was fair and reasonable to include?

Answer 22

1. Bargaining positions of the parties
2. Whether the customer received any inducement to accept the term
3. Whether the customer knew/ought reasonably to have known about the existence and extent of the term
4. Whether compliance with a condition was practicable (in situations where the term excludes liability if a term is not complied with)
5. Whether the goods were made pursuant to a special order

Question 23

What is the difference between an exclusion clause and a limitation clause?

Answer 23

An exclusion clause seeks to exclude liability outright. A limitation clause seeks only to limit liability.

Question 24

In addition to the factors which the court will consider in determining whether an exclusion clause was reasonable, what two things will they also consider when determining the same for a limitation clause?

Answer 24

1. The resources available to the party relying on the clause to meet the liability
2. Whether it was open to them to protect themselves using insurance

Question 25

What does the reasonableness test under UCTA concern specifically?

Answer 25

Whether it was reasonable to include the clause, not whether it was reasonable to rely on it

Question 26

Who has the burden of proving a clause was reasonable?

Answer 26

The party relying on the clause

Question 27

Under the Consumer Rights Act 2015, what is the definition of trader?

Answer 27

A person acting for purposes relating to that person’s trade, business, craft, or profession, whether acting personally or through another person acting in the trader’s name or on the trader’s behalf

Question 28

Under the CRA, what is the definition of consumer?

Answer 28

An individual acting for purposes that are wholly or mainly outside the individual’s trade, business, craft, or profession

Question 29

Under the CRA, what statutory implied terms concerning goods and services cannot be excluded or limited?

Answer 29

Goods:

1. Title
2. Compliance with description
3. Quality
4. Fitness for purpose

Services:

1. Provided with reasonable care and skill
2. Provided within a reasonable time where no time has been agreed

Question 30

Under the CRA, what is the fate of a clause which attempts to exclude liability for death or personal injury caused by negligence?

Answer 30

Prohibited and therefore automatically void. Same as under UCTA for business to business contracts.

Question 31

How is an unfair term defined under the CRA?

Answer 31

1. Contrary to requirements of good faith
2. Causes significant imbalance in the parties’ rights/obligations to the detriment of the consumer

Question 32

What are two characteristics the CRA requires of contract terms?

Answer 32

1. Transparent (*drafted in plain, intelligible language, I.e. is legible *)
2. Prominent (brought to the consumer’s attention in such a way that the average consumer would be aware of it).

Question 33

Under the CRA, in whose favour must ambiguities be resolved?

Answer 33

The consumer’s

Question 34

What the effect of a term deemed to be unfair under the CRA?

Answer 34

Not binding, unless the consumers choose to rely on it

Question 35

What are six examples of potentiallyunfair terms under the Consumer Rights Act?

Answer 35

1. Excluding/limiting liability in event of death/injury caused by act/omission other than negligence
2. Requiring disproportionately high fees to terminate the contract
3. Enabling the trader to terminate the contract without reasonable notice (except where there are serious grounds)
4. Enabling the trader to unilaterally alter the contract for reasons not expressly provided in the contract
5. Giving the trader the discretion to decide price after the consumer has become bound
6. Excluding/limiting the consumer’s right to take legal action

Question 36

In what two circumstances will a term not be assessed for fairness under the CRA?

Answer 36

When the term:

1. Specifies the main subject matter of the contract
2. Is related to the price payable

Question 37

Even where it falls within one of the two categories, what is required of the term for it not to be assessed for fairness under the CRA?

Answer 37

It must be:

1. Transparent (expressed in plain, intelligible language, and if written, legible)
2. Prominent (brought to the consumer’s attention, such that the average consumer would be aware of it)

Question 38

Will the fact that the innocent party is illiterate and unable to read the clause prevent it from being incorporated?

Answer 38

NO!