Contract terms-Exclusion clauses

Question 1

What is an exclusion clause?

Answer 1

Excludes one of the parties from liability if a certain element of the contract is breached

Question 2

What is a limitation clause?

Answer 2

Reduces one of the parties level of liability if a certain element of the contract is breached.

Question 3

Courts accept exclusion clauses but what do they try to seek to ensure?

Answer 3

That the less powerful party is not taken advantage of by the more powerful party.

Question 4

Example case for an exclusion clause.

Answer 4

L’Estrange and Graucob (1934)

Question 5

Facts of L’Estrange and Graucob (1934).

Answer 5

C purchased cigarette vending machine for her cafe.
Signed an order form which included a general exclusion clause in the small print.
EC said machine did not work.
Could not claim compensation, whether she had read the full terms or not.

Question 6

Rule for exclusion clauses which come from common law.

Answer 6

1. Main purpose rule
2. Incorporation
3. Overriding oral statement
4. Third parties
5. Construction - the contra proferentem rule

Question 7

What is the main purpose rule?

Answer 7

Courts may not accept it as a valid exclusion clause if it affects the “main purpose” of the contract

Question 8

Case for main purpose rule.

Answer 8

London and North Western Railway v Neilson (1922)

Question 9

3 ways an exclusion clause can be incorporated into the contract.

Answer 9

1. Signature
2. Notice
3. Previous course of dealing

Question 10

Case for a signature meaning an exclusion clause is incorporated in a contract even if the contract is not read.

Answer 10

L’Estrange and Graucob (1934)

Question 11

What is a sufficient notice in regards to incorporating an exclusion clause?

Answer 11

The other party must be made aware of the exclusion clause before they enter the contract.

Question 12

Case for sufficient notice being given for incorporation of a contract.

Answer 12

Chapelton v Barry urban District Council (1940)

Question 13

Facts of Chapelton.

Answer 13

C paid to sit on a council deck chair, after which he was given a receipt on the reverse of which was an exclusion clause.
Exclusion clause was invalid.

Question 14

What is meant by previous course of dealing in regards to the incorporation of an exclusion clause in a contract?

Answer 14

If C knew or should have known an exclusion clause from previous contracts, then it is held to still exist even if it was not expressly stated on the subsequent occasion.

Question 15

Case for previous course of dealing for the incorporation of an exclusion clause into a contract.

Answer 15

Spurling v Bradshaw (1956)

Question 16

What does the overriding oral statement rule mean?

Answer 16

A statement said verbally can cancel otherwise existing exclusion clauses e.g., something which was written down.

Question 17

Case for overriding oral statement.

Answer 17

Couchman v Hill (1947)

Question 18

What does the doctrine of privity usually prevent a third party from relying on?

Answer 18

The terms of a contract including exclusion clauses

Question 19

Case for third parties not being able to rely on exclusion clauses.

Answer 19

Scruttons Ltd v Midland Silicones Ltd (1961)

Question 20

Facts of Scruttons Ltd v Midland Silicones Ltd (1961).

Answer 20

C owned goods shipped by carrier.
Contract limited the liability of the carrier for damage caused to the goods to $500.
Carrier contracted D to unload the goods.
When doing so, D damaged them.
d not party to contract between C and carrier so was not covered by exclusion clause and had to pay full compensation to C.

Question 21

What is the contra proferentem rule?

Answer 21

Because courts do not look favourably on exclusion clauses, they construe-interpret- a contract so as not to give effect to an exclusion clause where the wording of the clause does not exactly cover the breach.
In construction, the court will construe it strictly against the person seeking to rely on it.

Question 22

What is the person known as who is seeking to rely on the exclusion clause?

Answer 22

Proferens

Question 23

Case for the contra proferentem rule.

Answer 23

Tektrol v HC Hanover (2005)

Question 24

What has recent case law suggested about the contra proferentem rule?

Answer 24

It mainly applies where there is a power imbalance between the parties and not to commercial contracts.

Question 25

Case for where the contra proferentem rule mainly applies where there is a power imbalance.

Answer 25

Transocean Drilling UK Ltd v Providence Resources plc (2016)

Question 26

What contracts does the CRA 2015 cover?

Answer 26

Those between traders and consumers

Question 27

What 3 sections of the CRA cover exclusion clauses?

Answer 27

s.31
s.57
s.65

Question 28

What does s.31 of the CRA prohibit?

Answer 28

A term excluding or limiting liability including for the following sections of the Act with respect to sales of goods:
s.9
s.10
s.11
Inc but not imp = s.14 and s.15

Question 29

What is s.14 of the CRA about?

Answer 29

Goods matching a model which is either seen or examined

Question 30

What is s.15 of the CRA about?

Answer 30

Installation as part of conformity of the goods with the contract

Question 31

What does s.57 of the CRA prohibit?

Answer 31

A term excluding or limiting liability for the supply of services under the following sections of the Act:
s.49
s.52
Inc but not imp = s.50 and s.51

Question 32

What is s.50 of the CRA about?

Answer 32

Information about trader or service to be binding

Question 33

What is s.51 of the CRA about?

Answer 33

Reasonable price for services

Question 34

[NOT ON SPEC]What does s.65 of the CRA prohibit?

Answer 34

Exclusion or restriction of liability for death or personal injury resulting from negligence

Question 35

[NOT ON SPEC]What does s.62 of the CRA state?

Answer 35

An unfair term of a consumer contract is not binding on the consumer

Question 36

What does the Unfair Contract Terms Act 1977 cover?

Answer 36

Non-consumer contracts

Question 37

What does s.2 of the UCTA state?

Answer 37

Any contract term or notice excluding liability for death or personal injury caused by negligence is void (not legally binding).

Question 38

What does s.3 of the UCTA state?

Answer 38

Where party 1 deals on the basis of party 2’s written standard terms of business, party 2 cannot include in these terms exclusions which render a contractual performance substantially different from that which was reasonably expected, or render no performance at all, except in so far as the contract term satisfies the requirement of reasonableness

Question 39

What does s.3 of the UCTA not cover?

Answer 39

An individually negotiated contract between 2 companies as this would not be a standard terms contract.

Question 40

When can party 2 include exclusion clauses in the contract in regards to s.3 of the UCTA?

Answer 40

Where the EC is reasonable

Question 41

Where is the reasonableness of any term covered in the UCTA?

Answer 41

s.11
OR
Schedule 2 of the UCTA 1977

Question 42

What factors are considered when thinking about what terms are reasonable in s.11 and Schedule 2 of the UCTA?

Answer 42

1. Relative bargaining strength of the parties
2. Whether there was the possibility of contracting with others without such a term
3. Whether the contractor received any inducements to agree to it
4. Whether the goods were made or adapted to the customer’s special order.

Question 43

Case for where the clause was not reasonable under s.11 and Schedule 2 of UCTA 1977.

Answer 43

George Mitchell v Finney Lock Seeds (1983)

Question 44

Case for where the clause was reasonable under s.11 and Schedule 2 of UCTA 1977.

Answer 44

Watford Electronics Ltd v Sanderson CFL Ltd (2001)

Question 45

Facts of George Mitchell v Finney Lock Seeds (1983)

Answer 45

C, a farmer, purchased 30lb of cabbage seed from the D for £192. Cabbage seeds only produced a small green leaf plant not fit for human consumption and C lost £60,000 + on planting/tending/use of land etc. The contract contained a clause which limited liability to the price of the seeds. CoA held the clause was unreasonable as the buyer would not have been aware of the fault whereas the seller would.

Question 46

Facts of Watford Electronics Ltd v Sanderson CFL Ltd (2001).

Answer 46

C bought software from D. The system failed to perform. In the D’s standard terms there was a clause limiting any liability to the price of the goods supplied. The court said that it was a reasonable term since the parties were of equal bargaining power and the limitation clause was subject to negotiation when the contract was made.