exclusion and limitation clauses Flashcards
exclusion clause
a term in a contract that prevents one party being liable for a breach of contract
limitation clause
a term in a contract that sets an upper limit on liability for breach of contract
common law controls - the ‘incorporation rules’
can be incorporated in three ways;
- by signature
- by notice
- by a previous course of dealings between the parties
incorporation by signature
where a party signed a written agreement, they are bound by that agreement
L’Estrange v Graucob
C brought a cigarette vending machine for the use in her cafe, she signed a contract which excluded all implied conditions + warranties. The machine didn’t work properly and C relied on the implied term that it would be fit for purpose.
She was bound by the exclusion clause as she’d signed it, even though she’d not read the contract.
exception of incorporation by signature;
if a party misrepresents the exclusion clause in response to a query, the clause will be interpreted in accordance with misrepresentation
Curtis v Chemical cleaning + dyeing
Mrs Curtis took her wedding dress to be cleaned + was asked to sign a document that exempted the cleaners liability of any damage. Before signing she asked what it said , told it said they held no liability for damage to beads or sequins. When she returned it had large stains.
Cleaners could not rely on the exclusion clause because of the verbal assurances made.
incorporation by notice
before acceptance, was the term brought to the attention of the person who would suffer from this term?
Olley v Marlborough Court Hotel
The term wasn’t seen before acceptance. Cs booked into the hotel, when they left their key at reception as required they came back to someone had stolen some of their belongings.
They hadn’t seen the exclusion of liability before forming the contract as it was on the back of the hotel door ,so hotel was liable
Chapelton v Ruby Urban District Council
must be a contractual document, which is different to a receipt
Thompson v LMS Railway
must be reasonable steps to draw the exclusion clauses to the others attention
Mrs Thompson was illiterate - exclusion was on the back of the ticket which referred to companies timetable which exempted liability for injury - she was injured
Thornton v Shoe Lane Carpark
C injured in a carpark owned by D - notice was by the ticket machine
The reasonable notice must be given before the contract had been accepted
incorporation by previous course of dealings between the parties
this will only apply to an exclusion clause if there has been ‘consistent course of dealing’ on the same terms.
McCutcheon v MacBrayne
C often used Ds ferries, sometimes asked to sign a risk note + exclusion clause. On this occasion a relative took a car on the ferry - received a receipt that referred to the exclusion clause + including clauses displayed on the premise.
Didn’t read the receipt + never asked to sign it ,ferry sank and car was destroyed.
Court decided there was no consistent course of action to make sure that the C know exclusion clause will always be present.
do exclusion clauses apply to 3rd parties who are not party to a contract?
- was the 3rd party intended to benefit from the term?
- was it clear the contracting party was also contracting an agent for the 3rd party?
3.had they authority to do so?
4.was there any difficulty with the consideration overcome?
contra proferentum rule
if there is any doubt about the meaning of an exclusion/limitation clause the court will interpret it least favourably against the person who introduced it.
Houghton v Trifalgar insurance
however, Transoceanic Drilling v Providence
this rule should only be used if a term of a contract is one-sided and ambiguous. If the meaning of the words is clear the rule should not be used.
statutory controls
if the court decides that an exclusion clause has been incorporated into a contract through the common law rules, then it must still check whether it is valid, using statutory controls.
2 most important Acts to look at are:
> The Unfair Contract Terms Act
AND
The Consumer Rights Act
s.2(1) UCTA
cannot exclude liability for death or personal injury caused by negligence
s.2(2) UCTA
cannot exclude liability for other forms of loss or damage due to negligence unless the term or notice satisfies the requirement of reasonableness
2.6(1)
can never exclude the implied term that the seller has a right to sell.
implied terms came from;
s.7 Supply of goods and services Act and Sale of Goods Act
s.3 UCTA
where one party has to agree to the other party’s standard terms and conditions then all terms must be ‘reasonable’
s.11 and Schedule 2 UCTA
give guidelines on what is meant by ‘reasonable’ - but the judge must decided by looking at all the circumstances as well as these guidelines.
the party who is trying to exclude liability has the burden of proving…
that the term is ‘reasonable’
the knowledge test
was the term ‘reasonable’ in the light of what the parties knew at the time
s.11(2) test UCTA court look at following factors to decide reasonableness…
> relative bargaining strength
inducements
knowledge
likelihood of compliance with term excluded
special order goods
Watford Electronics v Sanderson
C brought software from the D. The system failed to perform. In the Ds standard terms there was a clause limiting any liability to the price of the goods supplied.
It was reasonable term since the parties were of equal bargaining power + limitation clause was subject to negotiation when the contract was made.
s.11(4) limitation clauses
these try to limit the extent of Ds liability if the contract is breached
The Act says limitation clauses were only reasonable if:
> D reasonably would not have sufficient resources to pay the full amount
It would not have been possible for D to arrange insurance to cover the cost of any claim
George Mitchell v Finney Lock Seeds
C ordered cabbage seed from D costing £200, the seed didn’t match the description + produced plants that were unfit for resale - the entire crop was lost
The contract limited liability to replacement of goods or refund in price.
Court stated this was not reasonable.
Seller couldve insured against crop failure at a modest cost + in the past claimant didn’t always consider the sum fair as he’d paid more.
s.62 CRA 2015
all other terms in the consumer contracts must be fair - doesn’t put consumer at a disadvantage by limiting the rights or disproportionately increasing their obligations
any terms relating to the main subject matter of the contract or the price are only fair if they are:
> transparent
AND
Prominent
