Contract Terms & Exemption Clauses

Question 1

What are express terms of a contract?

Answer 1

Those terms of a contract which are expressly made - can be written or oral

Can be incorporated into contracts by:

• Signature
• Reasonable notice before, or at the time of, the contract
• A previous consistent course of dealing

Question 2

What is not a term in a contract?

Answer 2

Mere ‘puffery’ (advertising hyperbole)

Representation (statements made to induce party into entering contract, made before contract entered into)

Question 3

What are some of the factors that might indicate whether something is an express term?

Answer 3

Timing
eg. Not a term if a week passed between statement made & contract made

Importance

Expertise of parties
Do they have specialist knowledge & skill?

Further checks
If the seller prevents a buyer checking, they’ve assumed responsibility for what they’ve said & that may become a term
(If advise buyer to make further checks, likely not a term)

Contract in writing
(But not definitive!)

Question 4

What are the three ways express terms may be incorporated in contracts?

Answer 4

1. Signature
In the absence of misrepresentation will be binding

2. Reasonable notice before, or at the time of, the contract
What amounts to ‘reasonable’ depends on factors including:

• Nature of document: is it one which a reasonable person would expect there to be contract terms (eg. a quote)?
• Legibility
• Onerous term: the more onerous the term, the more a party must do to bring it to the other party’s attention

3. Previous consistent course of dealing
ie. Lots of dealings on precisely the same terms, so the other party should be expecting them

Question 5

What are the four main categories of implied terms?

Answer 5

Terms implied by custom or trade usage

Terms implied in fact (based on the presumed intention of the parties ie. so obvious goes without staying)

Terms implied in law (eg. in an employment contract, implied duty on employer to provide health & safe environment for employee to work in)

Terms implied by statute

• Sale of Goods Act 1979
• Supply of Goods & Services Act 1982

Question 6

What terms are implied by the Sale of Goods Act 1979?

Answer 6

s12: Seller has good title (ie. owns those goods)

s13(1): goods match description

s14(2): goods will be of satisfactory quality

s14(3): goods are fit for particular purpose that the purchaser has expressly/impliedly made known

s15: bulk correspond to sample

These are all categorised as conditions (although if a breach of ss13-15 is so slight that rejection would be unreasonable, may be treated as a warranty)

Question 7

How are the terms implied into a contract by the Sale of Goods Act 1979 classified?

Answer 7

Conditions

Nb. If a breach of ss13-15 (ie. match description, satisfactory quality, fit for purpose, bulk match sample) is so slight that rejection of the goods would be unreasonable, it may be treated as a warranty

Question 8

How do you determine if goods are of a satisfactory quality under the Sale of Goods Act 1979?

Answer 8

s14(2) SGA 1979: Goods will be of satisfactory quality

Will be satisfactory if they meet the standard a reasonable person would describe as satisfactory → factors to consider:

• Fitness for purpose
• Appearance & finish
• Lack of minor defects
• Safety
• Durability

Question 9

If one of the terms implied into a contract by the Sale of Goods Act 1979 is breached, what remedy is available?

Answer 9

If there is a breach, can reject goods within a reasonable time, get a refund of the price & claim damages
(The implied conditions are strict liability, ie. doesn’t matter why there has been a breach)

There are 2 bars to rejection:

• Acceptance (eg. by keeping the goods for longer than a reasonable time without indicating want to reject them)
• Breach is so slight it would be unreasonable to reject

Question 10

What terms are implied into a contract by the Supply of Goods and Services Act?

Answer 10

Where there work or a service done in the course of business:

• s13: Service must be undertaken with reasonable care & skill (innominate term)
• s14: If no time fixed, service must be undertaken within a reasonable time
• s15: If no price fixed, a reasonable price will be payable

Where it is the supply of goods:

• s3: goods match description
• s4(2): goods will be of satisfactory quality
• s4(5): goods are fit for particular purpose that the purchaser has expressly/impliedly made known

Question 11

Which statute implies terms into which kind of contract?

Answer 11

Sale of goods (B2B) : SGA 1979

Supply of services (B2B): SGSA 1982

Supply of services & sale of goods (B2B): SGSA 1982

Sale of goods & supply of services (B2C): CRA 2015

Question 12

What terms are implied into a contract between business & consumers?

Answer 12

The Consumer Rights Act

• s9: goods sold will be of satisfactory quality
• s10: goods will be fit for purpose
• s11: goods will correspond with description
• s17: the seller has the right to sell or transfer the goods
• s49: service will be carried out with reasonable care & skill
• s51: If no price fixed for a service, a reasonable price will be paid
• s52: If no time fixed for a service, will be done within a reasonable time

Question 13

If a term implied into a contract by the Consumer Rights Act 2015 is breached, what remedies are available for the consumer?

Answer 13

For the sale of goods:

• Short-term right to reject & a full refund within 30 days
• If beyond 30 days, the right to repair or replacement (if appropriate)
• Right to a price reduction or the final right to reject & get a partial refund reflecting their partial use of the goods

For the supply of services:
Right to require repeat performance (where reasonable) or to a price reduction

Question 14

What are the 3 ways a term may be classified?

Answer 14

Condition: main important terms of the contract

• If breached, the innocent party can either: affirm the contract + claim damages; or terminate + claim damages

Warranty: less important minor terms of the contract

• If breached, the innocent party can claim damages only - the contract continues

Innominate term: terms undefined/unclear

• Parties have to wait & see what the consequence of the breach is
• Innocent party can terminate only if the breach effectively deprives them of substantially the whole intended benefit

Question 15

What question should be asked if unsure if a term is a condition or a warranty?

Answer 15

Does the term go to the root of the contract?

ie. Would the failure to perform the term make the rest of the contract different in substance from what was stipulated (CONDITION) or merely partially affect it & so can be compensated with damages only (WARRANTY)

Question 16

If it is an innominate term, what remedy is available to the innocent party?

Answer 16

Ask: Do the consequences of the breach deprive the innocent party of substantially the whole benefit of the contract?

• If yes: treat the breach as a breach of condition - ie. affirm & damages or terminate & damages
• If no: warranty - damages only

Factors which may assist: losses caused by breach, cost of making performance that has been received to date; value of performance received to date; willingness of party in breach to remedy; likelihood of further breaches; adequacy of damages as a remedy

Question 17

What is an exemption clause?

Answer 17

A term which excludes or limits liability

⇒ If seek to rely on an exemption clause, it must clear 3 hurdles:

1. Incorporation
2. Construction
3. Statutory controls (UCTA / CRA)

Question 18

How can an exemption clause be incorporated into a contract?

Answer 18

1. Signature
   Will be binding (unless misrepresentation)
2. Reasonable notice before or at time of the contract
   What is reasonable depends on factors including:

• Type of document (ie. does the document in which the clause is contained have contractual effect?)
  -eg. Ticket for deckchair & timesheet both failed
• Legibility
• Onerous term requires greater notice

3. Previous consistent course of dealing (on exactly the same terms!)
   Nb. must be consistent! eg. not asking to sign every time will not be consistent

Question 19

What is meant by the ‘construction’ of an exemption clause?

Answer 19

Interpretation ie. was the clause intended to exclude liability for the particular breach & loss that has occurred?

Question 20

How will an exemption clause clear the ‘construction’ hurdle?

Answer 20

Ask: Does the clause cover the breach?

General rule: Ambiguous clauses are construed against the party seeking to rely on the clause (contra proferentem rule)

(But in commercial contracts where the parties are of equal bargaining power, courts more willing to give effect to the natural ordinary meaning)

Question 21

What is the contra proferentem rule of construction?

Answer 21

An ambiguous clause will be construed against the party seeking to rely on it

Question 22

Can an exemption clause exclude liability in negligence?

Answer 22

Courts aren’t keen on wide exemption clauses seeking to exclude liability for negligence (tortious duty of care + contractual duty of care)

Guidelines of the Canada Steamship Test:

1) Does the exemption clause expressly refer to negligence?
Yes: exemption of negligence liability is effective

If no, 2) Is the clause wide enough to cover negligence? *(eg. ‘any liability’, ‘any loss howsoever caused’)
No: Exemption of negligence liability is ineffective

If yes, 3) Is the clause too wide?
ie. Is the clause being used by the defendant to exclude other types of liability (breach of SGA, breach of express term etc) as well as negligence?
Yes: exemption of negligence liability is ineffective
No: exemption of negligence liability is effective

Question 23

What are the two statutes governing exclusion clause?

Answer 23

Unfair Contract Terms Act 1977 (B2B)

Consumer Rights Act 2015 (B2C)

Question 24

What is the aim of UCTA 1977 & what are the 3 possible results when applying it to an exemption clause?

Answer 24

Aim is to restrict the effectiveness of certain types of exemption clauses

Possible results:

(a) It prevents the defendant from excluding or restricting their liability by reference to the term

• eg. In relation to death/PI caused by negligence
• eg. In relation to seller’s implied term that they have title of goods

(b) It has no effect on the term & the defendant can rely on the term

• eg. a clause in a freely negotiated contract that exempts liability for breach of an express term

(c) It subjects the term to a ‘requirement of reasonableness - defendant can rely only if it is ‘reasonable’

Question 25

What is the effect of UCTA on an exemption clause for breach of an express term?

Answer 25

If the contract has been freely negotiated, UCTA has no effect & the defendant can rely on the clause

BUT if the contract was not freely negotiated (ie. one party dealing with another’s written standard terms, eg. pre-written terms & conditions), it must pass the reasonableness test

Question 26

What is the effect of UCTA on an exemption clause excluding liability for death / personal injury caused by negligence?

Answer 26

The exemption clause will be void

Question 27

What is the effect of an exclusion clause exemption liability for breach of the implied term that the seller of goods has title to them?

Answer 27

The exemption clause will be void

Question 28

Which 3 kinds of exemption clauses will be subject to the UCTA reasonableness test?

Answer 28

Clauses exempting liability from any loss or damage (not death / PI) resulting from negligence

Clauses exempting liability for the breach of the statutory implied terms (except for implied term seller has good title)

Clauses exempting liability for the breach of an express term where the contract was not freely negotiated

Question 29

What is the UCTA reasonableness test?

Answer 29

Is the clause fair & reasonable → this is judged at the time contract was made

Burden of proof is on the defendant

Factors to consider:

• Relative strength of bargaining positions (big discrepancy = probably unreasonable)
• Did the customer receive an inducement to agree to the clause? (yes = more likely reasonable)
• Notice: extent to which customer knew or ought reasonably to have known of the clause (yes = more likely reasonable)
• Whether it was reasonable at the time of the contract to expect compliance with the condition
• Bespoke goods (if bespoke, more reasonable)
• Possibility for defendant to take out insurance

Question 30

Can a supplier exclude liability for breach of key terms implied into contracts for sale & supply of goods & services in business-to-consumer contract?

Answer 30

Generally no - the implied terms in the CRA 2015 are basically all non-excludable rights that consumers should be able to enforce without restriction

Question 31

Can an exemption clause protect someone who is not a party to the contract?

Answer 31

General rule: An exemption clause cannot protect a third party (privity of contract)

Exception: if the third party is named in the exemption clause or identified as a member of a class entitled to benefit from it