Chapter 7 - Exemption clauses Flashcards
What is the purpose of exemption clauses?
These are clauses in contracts to limit or exclude liability for loss/damage in the event that the contract isn’t performed properly.
What are the 2 tests under common law about exemption clauses?
1) Whether an exemption clause is truly part of the contract (incorporation)?
2) Does the clause exempt liability for the particular breach and loss suffered?
What is the incorporation test for exemption clauses?
Looks at whether the exemption clause was incorporated into the contract.
- Through signature?
- Through reasonable course of dealings before or at the time of contract ?
This looks at contractual nature of the document, how onerous the term is, legibility, position of the clause, timing
- Through previous consistent course of dealings?
What is the second test for exemption clauses?
Construction - whether the clause was intended to exclude or otherwise limit liability for this particular breach and loss.
What is the contra proferentem rule and what effect does this have?
The contra proferentem rule = if the exemption clause is ambiguous, it will be construed AGAINST the person seeking to rely on it.
Clause: ‘The company is not responsible for damage caused by fire to customers’ cars on the premises’
Incident: C’s car was being repaired at D’s garage when it damaged by the fire due to D’s negligence.
What did the court rule on this?
That the exemption clause DID NOT EXCLUDE liability for the situation as it didn’t explicitly say fire caused by D’s negligence.
Only a warning for an accidental fire.
Clause: ‘The car insurance policy excluded damage ‘caused or arising whilst the car is conveying any load in excess of that which it was construed for’.
Incident: At the time of the accident, there were 6 people sitting in a car made for 5.
What did the court rule on this?
Here, the court held that the word ‘load’ only covered cases where there was a specified weight that must not be exceeded as in the case of lorries/vans.
What are the two STATUTORY controls which govern limitation and exclusion clauses?
UCTA (Unfair Contract Terms Act) 1977 —> covers B2B
The Consumer Rights Act 2015 —> covers B2C
What are the three results that can come out of the UCTA 1977?
1) It PREVENTS D from excluding or restricting their liability by reference to the term.
2) It has NO EFFECT on the term and so D may rely on it.
3) It subjects the term to a ‘requirement of reasonableness’. This means D can rely on the term only if it satisfies the reasonableness test. If it doesn’t, D can’t rely on it.
As part of the reasonableness test:
Regarding negligent breaches, what is covered or not covered?
Personal injury/death - exemption clause void.
Damage/loss - exemption clause valid if reasonable.
*Applies to B2Bs.
What other clauses does the reasonableness test look at?
Breach of the statutory implied terms relating to goods - description, quality, fitness for purpose (this applies to both sale of goods contracts and goods supplied under a work and material contract) AND
Breach of an express term contained in the standard written terms of the person seeking to exempt liability.
How is the reasonableness test satisfied?
If the clause was a fair and reasonable one to be included in the contract taking into account all the circumstances including what the parties knew/ought to have known at that point in time.
What type of factors are included in the Sch 2 guidelines for UCTA? - when considering the reasonableness test
1) The relative strength of the bargaining positions of the parties
2) Whether the customer received an inducement to agree to the exemption clause or in accepting it, did the customer have an opportunity to enter a similar contract with someone else but without having to accept a similar exemption clause.
3) Whether the customer knew or ought to have reasonably known of the existence and extent of the clause (factoring in any trade custom/previous dealings between the parties)
4) Where the exemption clause will apply if a condition isn’t complied with, whether it was reasonable at the time of the contract to expect compliance with the condition would be practicable
Also should consider:
The resources that D could expect to be available to them for the purpose of meeting liability should it arise.
How far it was open to D to take out insurance cover.
What does the CRA give effect to regarding exemption clauses and what does this apply to?
Applies to B2Cs
Most of the implied terms under CRA 2015 are rights as liability for breaches can’t be excluded/limited by clauses in the contract.
Regarding sales contracts, what does the CRA provide for? (Remember, this is B2C!!)
Implied terms of:
Goods to be of satisfactory quality
Fit for purpose
To match their description
CANNOT be excluded/restricted.
Means appropriate remedy should be able to be attained by customers in all cases.
