7. Exclusion Clauses Flashcards
What is an exclusion clause?
A term of a contract that attempts to exclude/limit liability of one of the parties
What three criteria must be satisfied for an exclusion clause to be valid?
The clause must:
- Have been incorporated into the contract
- Be properly drafted so it is construed as excluding the actual, exact liability (i.e. harm suffered) effectively, and
- Not be prohibited by statute
At what time must an exclusion clause be incorporated into a contract?
At the time or before the contract is concluded
What are the three ways an exclusion clause, and any clause for that matter, can be incorporated into a contract?
- By signature
- By notice
- Through custom or previous dealings
Why does a signature incorporate a term?
Because a party who signs a contractual document is generally bound by its terms
What are two situations in which the incorporation by signature rule will not apply?
- Inducement by oral misrepresentation
- Non est factum
What is the inducement by oral misrepresentation exception to the incorporation by signature rule?
Where a party is induced to enter into the contract by an oral misrepresentation, this will be deemed to override the written contractual terms
What is the non est factum exception to the incorporation by signature rule, and what is required to avail of it?
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
What is required for incorporation by notice?
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
Does the innocent party being illiterate/unable to read the exclusion clause have any relevance to its incorporation by notice?
No
What is the contractual document requirement in relation to incorporation by notice?
The clause must have incorporated/referred to a document intended to have contractual effect
What is the timing requirement for the notice in the context of incorporation by notice?
At the time or before the contract was concluded
What is required of the course of dealings between the parties if an exclusion clause is to be incorporated in this way?
It must be regular and consistent
What is the effect of the contra proferentum rule?
Any ambiguity when interpreting an exclusion clause (or any clause) will be strictly interpreted against the party seeking to rely on it.
- courts take a hostile view to these!
What is the scope of the Unfair Contract Terms Act 1977 when it comes to exclusion clauses?
Business to business contracts only
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)?
Automatically void
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)?
Void, unless reasonable
Under UCTA, what implied condition under statute cannot be excluded?
Implied condition as to title
(Sale of Goods Act 1979 or Supply of Goods and Services Act 1982)
Under UCTA, breach of obligations as to compliance with what three things cannot be excluded, unless reasonable?
- Description
- Quality
- Fitness for purpose
(SOGA 1979 or SGSA 1982)
Under UCTA, if a party contracts on its standard terms and conditions, what are three terms they cannot rely on, unless reasonable?
Terms which:
- Exclude liability for breach of contract
- Reserve the right to render contractual performance substantially different from what was expected
- Render no contractual performance at all
How could the reasonableness requirement under UCTA be described?
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
What are five factors among which the court will consider in determining whether the term was fair and reasonable to include under B2B contract (UCTA)?
- Bargaining positions of the parties
- Whether the customer received any inducement to accept the term
- Whether the customer knew/ought reasonably to have known about the existence and extent of the term
- Whether compliance with a condition was practicable (in situations where the term excludes liability if a term is not complied with)
- Whether the goods were made pursuant to a special order
When is an exclusion clause likely to be found to be unfair in B2B contracts under the UCCTA?
Not expressed in plain, intelligible language
contrary to the requirement of good faith,
* Causes significant imbalance in the parties’ rights and obligations, to the consumer’s detriment.
* Allows a seller to alter the terms of the contract unilaterally without a valid reason which is specified in the contract.
What is the difference between an exclusion clause and a limitation clause?
An exclusion clause seeks to exclude liability outright. A limitation clause seeks only to limit liability.
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?
- The resources available to the party relying on the clause to meet the liability
- Whether it was open to them to protect themselves using insurance
What does the reasonableness test under UCTA concern specifically?
Whether it was reasonable to include the clause, not whether it was reasonable to rely on it
What is the difference between the validity test for exclusion clauses between B2B contracts and B2C?
B2B - reasonabless test
B2C - fairness test
Under the Consumer Rights Act 2015, what is the definition of trader?
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
Under the CRA, what is the definition of consumer?
An individual acting for purposes that are wholly or mainly outside the individual’s trade, business, craft, or profession
Under the CRA, what statutory implied terms concerning goods and services cannot be excluded or limited?
Goods:
- Title
- Compliance with description
- Quality
- Fitness for purpose
Services:
- Provided with reasonable care and skill
- Provided within a reasonable time where no time has been agreed
Under the CRA, what is the fate of a clause which attempts to exclude liability for death or personal injury caused by negligence?
Prohibited. Same as under UCTA for business to business contracts.
How is an unfair term defined under the CRA?
- Contrary to requirements of good faith
- Causes significant imbalance in the parties’ rights/obligations to the detriment of the consumer
What are two characteristics the CRA requires of contract terms?
- Transparent (drafted in plain, intelligible language)
- Legible
Under the CRA, in whose favour must ambiguities be resolved?
The consumer’s
What the effect of a term deemed to be unfair under the CRA?
Not binding, unless the consumers choose to rely on it
What are six examples of potentially unfair terms?
- Excluding/limiting liability in event of death/injury caused by act/omission other than negligence
- Requiring disproportionately high fees to terminate the contract
- Enabling the trader to terminate the contract without reasonable notice (except where there are serious grounds)
- Enabling the trader to unilaterally alter the contract for reasons not expressly provided in the contract
- Giving the trader the discretion to decide price after the consumer has become bound
- Excluding/limiting the consumer’s right to take legal action
In what two circumstances will a term not be assessed for fairness under the CRA?
When the term:
- Specifies the main subject matter of the contract
- Is related to the price payable
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?
It must be:
- Transparent (expressed in plain, intelligible language, and if written, legible)
- Prominent (brought to the consumer’s attention, such that the average consumer would be aware of it)
