(BLUE) Terms: Exclusion Clauses

Question 1

What are exclusion clauses?

Answer 1

Terms which attempt to exclude responsibility for breach of contract or negligence.

Question 2

What are limitation clauses?

Answer 2

Terms which attempt to restrict/limit one party’s liability.

Question 3

What are the 3 areas of control the court has to determine whether an exemption clause is effective or not?

Answer 3

-Is the term part of the contract under the common law rules on incorporation?
-Is the term effective under the common law rule of contra proferentem?
-Is the term effective under the rules in the Consumer Rights Act 2015 and Unfair Contract Terms Act 1977?

Question 4

How does the court determine whether the exclusion clause has been incorporated?

Answer 4

Using the common law rules from incorporation (use cases from incorporation booklet).

Question 5

What does the rule of contra proferentem mean?

Answer 5

It is used by judges to defend against any ambiguity in exemption clauses. The rule means that if the exclusion is vage, judges will interpret against the party seeking to rely on it. This allows judges to give the benefit of the doubt to weaker parties to protect them.

Question 6

In which case did the rule of contra proferentem apply?

Answer 6

Hollier v Rambler Motors- Hollier was a private individual and Rambler was a business, therefore Rambler was in the stronger position. The court protected Hollier by not allowing the unclear exclusion clause to be forced on him.

Question 7

In which case did the rule of contra proferentem not apply?

Answer 7

Transocean Drilling UK v Providence Resources- the clause was very clear in how it should apply and was repeated numerous times. Both parties were businesses so had the power to negotiate with each other and both parties agreed to the term. Therefore, the exclusion did work.

Question 8

Which Acts are used to determine whether exclusion clauses are effective?

Answer 8

-Consumer Rights Act 2015 for B2C contracts
-Unfair Contract Terms Act 1977 for B2B or C2C contracts

Question 9

What does s62 of the Consumer Rights Act say?

Answer 9

A term is unfair if it is contrary to the requirement of good faith, causing a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer. In other words, when the term puts the consumer at a disadvantage by significantly limiting their rights or increasing their obligations, compared to the trader. If a term is unfair, it does not apply.

Question 10

Which 3 sections of the Consumer Rights Act cover things that will never be fair to exclude?

Answer 10

-s65
-s31
-s57

Question 11

What does s65 of the Consumer Rights Act say?

Answer 11

It will never be fair to exclude death or injury caused by negligence.

Question 12

What does s31 of the Consumer Rights Act say?

Answer 12

It will never be fair to exclude the implied rights to goods.

Question 13

What does s57 of the Consumer Rights Act say?

Answer 13

It will never be fair to exclude the implied rights to services.

Question 14

What does s2(1) of UCTA 1977 say?

Answer 14

Manufacturers, owners of premises, or suppliers of services cannot exclude liability for causing death or personal injury by negligence.

Question 15

What does s2(2) of UCTA 1977 say?

Answer 15

Suppliers of services, manufacturers, or owners of premises can exclude liability for causing property damage by negligence in so far as such clauses are reasonable.

Question 16

What does s3 of UCTA 1977 say?

Answer 16

Parties can exclude liability for breach of contract if the clause is reasonable.

Question 17

What does s6 of UCTA 1977 say?

Answer 17

Sellers can exclude the implied terms about goods but only insofar as such a clause is reasonable.

Question 18

What does s7 of UCTA 1977 say?

Answer 18

The seller can exclude the implied terms about services but only insofar as such a clause is reasonable.

Question 19

Which 2 sections of UCTA 1977 cover what reasonable means?

Answer 19

s11(1)- meant for s2(2) and s(3) but not really used in reality
s11(2)- meant for s6 and s7 but judges use it for all 4 clauses and so use this test for scenarios

Question 20

What does s11(1) of UCTA 1977 say?

Answer 20

The term must have been reasonable based on what was known to the parties at the time of making the contract. This is often called the knowledge test.

Question 21

What does s11(2) of UCTA 1977 say?

Answer 21

The guidelines for deciding if a term is reasonable are set out in Schedule 2 of UCTA.

Question 22

What are the main guidelines under Schedule 2 of UCTA 1977 for the s11(2) test?

Answer 22

-The relative strength of bargaining power of the 2 parties to the contract
-Whether the customer received any inducement to agree to the term
-Whether the buyer knew or should reasonably have known about the term
-Whether the goods were made to the special order of the customer
-Whether liability is accepted only if certain conditions are complied with

Question 23

What does the guideline about the relative strength of bargaining power of the 2 parties to the contract mean?

Answer 23

Where there is an imbalance in bargaining power, the courts are more likely to say the clause is unreasonable.

Question 24

What does the guideline about whether the customer received any inducement to agree to the term mean?

Answer 24

If a party received something (i.e a price reduction) in exchange for agreeing to the exclusion, the court is more likely to hold the clause reasonable.

Question 25

What does the guideline about whether the buyer knew or should reasonably have known about the term mean?

Answer 25

If the term was hidden or unclear, the court are likely to say the clause is unreasonable.

Question 26

What does the guideline about whether the goods were made to the special order of the customer mean?

Answer 26

In such contracts, the courts are more likely to hold the clause reasonable. This is logical where the buyer may have designed the goods and the seller is trying to exclude liability if the design produces defects.

Question 27

What does the guideline about whether liability is accepted only if certain conditions are complied with mean?

Answer 27

If a party says they are only liable in claims made very shortly after purchase, the court will probably hold this unreasonable as the time is too short.

Question 28

What does s11(4) of UCTA 1977 say?

Answer 28

It applies to limitation clauses and says that these may be reasonable based on the resources of the seller and the availability of insurance for the seller (i.e. what the seller could afford to pay).