Contract terms-Exclusion clauses Flashcards
What is an exclusion clause?
Excludes one of the parties from liability if a certain element of the contract is breached
What is a limitation clause?
Reduces one of the parties level of liability if a certain element of the contract is breached.
Courts accept exclusion clauses but what do they try to seek to ensure?
That the less powerful party is not taken advantage of by the more powerful party.
Example case for an exclusion clause.
L’Estrange and Graucob (1934)
Facts of L’Estrange and Graucob (1934).
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.
Rule for exclusion clauses which come from common law.
- Main purpose rule
- Incorporation
- Overriding oral statement
- Third parties
- Construction - the contra proferentem rule
What is the main purpose rule?
Courts may not accept it as a valid exclusion clause if it affects the “main purpose” of the contract
Case for main purpose rule.
London and North Western Railway v Neilson (1922)
3 ways an exclusion clause can be incorporated into the contract.
- Signature
- Notice
- Previous course of dealing
Case for a signature meaning an exclusion clause is incorporated in a contract even if the contract is not read.
L’Estrange and Graucob (1934)
What is a sufficient notice in regards to incorporating an exclusion clause?
The other party must be made aware of the exclusion clause before they enter the contract.
Case for sufficient notice being given for incorporation of a contract.
Chapelton v Barry urban District Council (1940)
Facts of Chapelton.
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.
What is meant by previous course of dealing in regards to the incorporation of an exclusion clause in a contract?
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.
Case for previous course of dealing for the incorporation of an exclusion clause into a contract.
Spurling v Bradshaw (1956)
What does the overriding oral statement rule mean?
A statement said verbally can cancel otherwise existing exclusion clauses e.g., something which was written down.
Case for overriding oral statement.
Couchman v Hill (1947)
What does the doctrine of privity usually prevent a third party from relying on?
The terms of a contract including exclusion clauses
Case for third parties not being able to rely on exclusion clauses.
Scruttons Ltd v Midland Silicones Ltd (1961)
Facts of Scruttons Ltd v Midland Silicones Ltd (1961).
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.
What is the contra proferentem rule?
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.
What is the person known as who is seeking to rely on the exclusion clause?
Proferens
Case for the contra proferentem rule.
Tektrol v HC Hanover (2005)
What has recent case law suggested about the contra proferentem rule?
It mainly applies where there is a power imbalance between the parties and not to commercial contracts.
Case for where the contra proferentem rule mainly applies where there is a power imbalance.
Transocean Drilling UK Ltd v Providence Resources plc (2016)
What contracts does the CRA 2015 cover?
Those between traders and consumers
What 3 sections of the CRA cover exclusion clauses?
s.31
s.57
s.65
What does s.31 of the CRA prohibit?
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
What is s.14 of the CRA about?
Goods matching a model which is either seen or examined
What is s.15 of the CRA about?
Installation as part of conformity of the goods with the contract
What does s.57 of the CRA prohibit?
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
What is s.50 of the CRA about?
Information about trader or service to be binding
What is s.51 of the CRA about?
Reasonable price for services
[NOT ON SPEC]What does s.65 of the CRA prohibit?
Exclusion or restriction of liability for death or personal injury resulting from negligence
[NOT ON SPEC]What does s.62 of the CRA state?
An unfair term of a consumer contract is not binding on the consumer
What does the Unfair Contract Terms Act 1977 cover?
Non-consumer contracts
What does s.2 of the UCTA state?
Any contract term or notice excluding liability for death or personal injury caused by negligence is void (not legally binding).
What does s.3 of the UCTA state?
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
What does s.3 of the UCTA not cover?
An individually negotiated contract between 2 companies as this would not be a standard terms contract.
When can party 2 include exclusion clauses in the contract in regards to s.3 of the UCTA?
Where the EC is reasonable
Where is the reasonableness of any term covered in the UCTA?
s.11
OR
Schedule 2 of the UCTA 1977
What factors are considered when thinking about what terms are reasonable in s.11 and Schedule 2 of the UCTA?
- Relative bargaining strength of the parties
- Whether there was the possibility of contracting with others without such a term
- Whether the contractor received any inducements to agree to it
- Whether the goods were made or adapted to the customer’s special order.
Case for where the clause was not reasonable under s.11 and Schedule 2 of UCTA 1977.
George Mitchell v Finney Lock Seeds (1983)
Case for where the clause was reasonable under s.11 and Schedule 2 of UCTA 1977.
Watford Electronics Ltd v Sanderson CFL Ltd (2001)
Facts of George Mitchell v Finney Lock Seeds (1983)
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.
Facts of Watford Electronics Ltd v Sanderson CFL Ltd (2001).
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.
