Contract Law for Finance

Question 1

What is a Disclaimer?

Answer 1

A notice intended to limit or exclude a party’s liability for a given matter.

Question 2

What is a Notice?

Answer 2

An announcement, whether or not in writing or any other form of communication.

§12 – Unfair Contract Terms Act 1977.

Question 3

What are the Two Types of Disclaimers a party may use?

Answer 3

• Contractual Disclaimer.
• Extra-Contractual Disclaimer.

P. 501.

Question 4

What is a Non-Reliance Clause?

Answer 4

• A clause stating the counterparty, by accepting to contract, made its own investigations as to the transaction’s factual and substantive matters; and
• That it neither received any representations from nor relied upon the party in reaching its decision.

P. 503-504.

Question 5

Between the Party and the Counterparty, who bears the burden of proving whether events fall within a Disclaimer?

Answer 5

Whoever is relying upon the disclaimer to limit or exclude liability.

Photo Production v Securicor Transport [1980] AC 827.

Question 6

How are Disclaimers Construed?

Answer 6

Strictly, and where there is ambiguity, against the reliant party.

Interfoto v Stiletto [1989] QB 433, at [18].

Question 7

Can a Disclaimer limit or exclude Liability for Negligence?

Answer 7

Yes, but only if the wording is sufficiently clear, and such a clause will be construed with abnormal strictness.

Canada Steamship v The King [1952] AC 192, at [18].

Question 8

Under the Unfair Contract Terms Act 1977, what are the limitations of a Disclaimer?

Answer 8

It cannot:
* Make enforcement subject to restrictive or onerous conditions;
* Exclude or restrict any right or remedy in respect of the liability;
* Subject the counterpary to any prejudice if it pursues enforcement.
* Exclude or restrict the rules of evidence or procedure.
* Exclude or restrict its relevant obligations or duties.

§13 – Unfair Contract Terms Act 1977.

Question 9

Does Mere Awareness of an Exemption Clause constitute a Voluntary Assumption of Risk?

Answer 9

No. The counterparty must have fully understood the clause, its nature and effect, and had an opportunity to negotiate terms.

§2(3) – Unfair Contract Terms Act 1977; Olley v Marlborough Court [1949] 1 KB 532, at [12].

Question 10

When will a Disclaimer be rendered Unenforceable for Unfairness?

Answer 10

When it fails the Reasonableness Test.

Question 11

What is the Reasonableness Test with respect to a Contractual Disclaimer?

Answer 11

An assessment of whether a clause is fair and reasonable in all the circumstances of the case.

§11(1) – Unfair Contract Terms Act 1977

Question 12

What are the Relevant Considerations for determining whether a term is Reasonable?

Answer 12

1. Bargaining power.
2. Notice of the clause.
3. Clarity of the clause.
4. Availability of information regarding the contract’s subject matter.
5. Availability of insurance for the liability sought to be limited.
6. Availability of alternative clauses.
7. Any other relevant circumstances, such as inclusion in the master agreement.

Sch. 2 – Unfair Contract Terms Act 1977.

Question 13

Who bears the Burden of Proving a Disclaimer satisfies the Reasonableness Test?

Answer 13

Whoever is relying upon the disclaimer to limit or exclude liability.

§11(5) – Unfair Contract Terms Act 1977.

Question 14

Can a Party use a Disclaimer to limit the sum for which it can be sued?

Answer 14

Yes, but only if as the limitation is reasonable given the reliant party’s resources and whether it could have insured itself.

§11(4) – Unfair Contract Terms Act 1977.

Question 15

Generally, how do the Courts view Disclaimers between Commercial Parties?

Answer 15

As mutually-agreed allocations of risk, and therefore exercise a reluctance to interfere therewith.

P. 514; Watford Electronics v Sanderson CFL [2001] EWCA Civ 317, at [8]-[10].

This is especially true if the parties are of equivalent bargaining power and resources.

Question 16

What is an Ostrich Clause?

Answer 16

A clause permitting a party to refuse to pass on information until it has received written notice of its veracity from an external source.

Lecture Notes.

Usually employed by Agent Banks in syndicated facilities, an Ostrich Clause is useful for entities bound by duties of confidentiality. However, a better solution would be to stipulate that the party will not pass on information which could leave it civilly or criminally liable.

Question 17

What is Misselling?

Answer 17

Selling a product or service to a Customer in a way that is misleading, deceptive, or inappropriate for their needs or objectives.

Lecture Notes.

Usually, a claim in misselling will be grounded in an alleged breach of the FCA’s Conduct of Business Sourcebook (COBS), namely to substantiate the impropriety.

Question 18

In a Claim for Misselling, what does the Customer seek to achieve?

Answer 18

• Obtain compensation; or
• Rescind the transaction.

P. 644.

Question 19

What is the Common Law’s position regarding whether Financial Firms are considered Advisors to their Customers?

Answer 19

An ordinary commercial relationship between two counterparties does not entail an advisory responsibility.

Certain relationships notwithstanding, naturally.

P. 646; Hedley Byrne v Heller [1964] AC 465.

Relevant factors include the Customer’s sophistication and whether the advice was relied upon, given under an agreement, given by an explicit advisor, or reflective of more than just common knowledge.°

° P. 650-651; JP Morgan v Springwell Navigaiton [2008] EWHC 1186 – cf – Rubenstein v HSBC [2012] EWCA Civ 1184.

Question 20

What is a Basis Clause?

Answer 20

A provision defining the basis upon which the parties transact, and which estops a party from denying that basis.

P. 653.

Question 21

What is the Commercial Purpose of a Basis Clause?

Answer 21

• To clarify the non-advisory nature of a transactional relationship; and thereby
• Contractually estop a party from claiming otherwise.

This is particularly useful for claims of misselling.

P. 653.