Chapter 31- Control of exemption clauses Flashcards
What are exemption clauses
- When one party avoids liability for certain breaches of the contract
Exemption clauses can be controlled through
- Common Law
- Statutory
Common law controls have 2 ways to regulate the exemption clauses
- By investigating whether the clause has actually been incorporated in the contract
- Whether the words used to make the clause are constructed in a way to cover the alleged breach
there are 3 ways in which an exemption clause can be included in a contract (RULES OF INCORPORATION)
- By signature
- By reasonable notice
- By previous course of action
By signature:
- once a contract has been signed, that means that its terms must now be applied, despite whether they were read or not.
- someone cannot avoid consequences by claiming ignorance if they did not read the contract
By reasonable notice:
- Separate written terms of the contract can be part of the contract ONLY IF the other party has had reasonable notice of them
- They need to reasonable in terms of:
>Time of notice
>Form of notice - The more ambiguous or onerous a term is, the more notice is needed.
- Most times these terms need to be at the front of the contract
By previous action:
- When two parties have previously contracted before and it had an exemption clause, now have made another contract, that same clause will be incorporated even without the previous steps taken.
Define the contra proferentem rule
- this rule ensures that ambiguous words in the exemption clause are interpreted least favourable to the party relying on that clause
- It is applied less harshly to those that are limiting liability compared to those that are avoiding clock
How does negligence affect an exemption clause
- the courts require clear language in negligence clauses to be effective.
- An exemption clause can be gotten away with if they do not mention liability as a result of negligence
How does seriousness of the breach affect an exemption clause
- if the breach has been seen to be fundamentally serious and defeated the intentions of the contract, then the courts will determine if the exemption clause is sufficient enough to limit or exclude liability
what are the other 3 common law controls used
- Misrepresentation: When the party making the exemption clause misrepresents its effect
- Inconsistent oral promise: An exemption clause can be made partly ineffective when made orally
- Third party: A third party cannot be protected by an exemption clause in a contract even if it is stated that it applies to them
What are the 2 statutory controls for exemption clauses
- Unfair contract Terms Act (1977)
- The Consumer Right Act (2015)
Which type of contracts does the UCTA deal with and not deal with
Applies:
- Business to business contracts
Not applies:
- Insurance contracts
- Contracts for transfer of land
- International commercial contracts
what are the 2 ways the UCTA controls exemption clauses
- Declaring them ineffective
- subjecting them to a reasonableness test
Describe the provision of negligence liability in the UCTA
- Negligence is defined as a breach of contractual obligations
- An exemption clause cannot exclude any liability for death or personal injury
- Negligence for bodily harm can only be limited if reasonable
Describe the provision of liability arising in contracts in the UCTA
- The act regulates clauses that seek to restrict liability for breach of contract
- This section deals with business-to-business contracts
Describe the provisions of a reasonableness test in the UCTA
- This places the burden of proving that a clause is reasonable on the party seeking to rely on the clause
- The courts will determine the reasonableness of a term by questioning:
- Whether the customer knew the term
- whether the exemption clause was reasonable at the time of contracting
- whether the customer received an inducement to agree
what is the Consumer Rights Act
This act updates the law on unfair contract terms in contracts between a trader and a consumer
Describe the provision of exclusion of liability in goods contracts in the CRA
- Unfair terms excluding liability for faulty, unsatisfactory, not fit for purpose or does not match the description, are not binding on consumers
Describe the provision of exclusion of liability service contract in the CRA
- Unfair terms excluding liability for faulty services are not binding on consumers
evaluate the law on control of exemption clauses
- Exemption clauses can lead to power imbalances which can be unfair
- Common law protection managed to help balance bargaining power with judges favouring weaker parties
- The contra proferentem rule ensures clauses are interpretated against those relying on those clauses
- However the rule has a limited role in commercial contracts (Persimmon v Ove)
- The UCTA and CRA reduces strict reliance on common law with the use of the reasonableness test
- The CRA & UCTA cannot exlude liablity for personal injury or death due to negligence
- A consumer is protected from ‘hidden’ exemption clauses, all exemption
clauses must be clearly stated.
