exclusion and limitation clauses

Question 1

exclusion clause

Answer 1

a term in a contract that prevents one party being liable for a breach of contract

Question 2

limitation clause

Answer 2

a term in a contract that sets an upper limit on liability for breach of contract

Question 3

common law controls - the ‘incorporation rules’
can be incorporated in three ways;

Answer 3

1. by signature
2. by notice
3. by a previous course of dealings between the parties

Question 4

incorporation by signature

Answer 4

where a party signed a written agreement, they are bound by that agreement

Question 5

L’Estrange v Graucob

Answer 5

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.

Question 6

exception of incorporation by signature;

Answer 6

if a party misrepresents the exclusion clause in response to a query, the clause will be interpreted in accordance with misrepresentation

Question 7

Curtis v Chemical cleaning + dyeing

Answer 7

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.

Question 8

incorporation by notice

Answer 8

before acceptance, was the term brought to the attention of the person who would suffer from this term?

Question 9

Olley v Marlborough Court Hotel

Answer 9

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

Question 10

Chapelton v Ruby Urban District Council

Answer 10

must be a contractual document, which is different to a receipt

Question 11

Thompson v LMS Railway

Answer 11

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

Question 12

Thornton v Shoe Lane Carpark

Answer 12

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

Question 13

incorporation by previous course of dealings between the parties

Answer 13

this will only apply to an exclusion clause if there has been ‘consistent course of dealing’ on the same terms.

Question 14

McCutcheon v MacBrayne

Answer 14

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.

Question 15

do exclusion clauses apply to 3rd parties who are not party to a contract?

Answer 15

1. was the 3rd party intended to benefit from the term?
2. 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?

Question 16

contra proferentum rule

Answer 16

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

Question 17

however, Transoceanic Drilling v Providence

Answer 17

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.

Question 18

statutory controls

Answer 18

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.

Question 19

2 most important Acts to look at are:

Answer 19

> The Unfair Contract Terms Act
AND
The Consumer Rights Act

Question 20

s.2(1) UCTA

Answer 20

cannot exclude liability for death or personal injury caused by negligence

Question 21

s.2(2) UCTA

Answer 21

cannot exclude liability for other forms of loss or damage due to negligence unless the term or notice satisfies the requirement of reasonableness

Question 22

2.6(1)

Answer 22

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

Question 23

s.3 UCTA

Answer 23

where one party has to agree to the other party’s standard terms and conditions then all terms must be ‘reasonable’

Question 24

s.11 and Schedule 2 UCTA

Answer 24

give guidelines on what is meant by ‘reasonable’ - but the judge must decided by looking at all the circumstances as well as these guidelines.

Question 25

the party who is trying to exclude liability has the burden of proving…

Answer 25

that the term is ‘reasonable’

Question 26

the knowledge test

Answer 26

was the term ‘reasonable’ in the light of what the parties knew at the time

Question 27

s.11(2) test UCTA court look at following factors to decide reasonableness…

Answer 27

> relative bargaining strength
inducements
knowledge
likelihood of compliance with term excluded
special order goods

Question 28

Watford Electronics v Sanderson

Answer 28

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.

Question 29

s.11(4) limitation clauses

Answer 29

these try to limit the extent of Ds liability if the contract is breached

Question 30

The Act says limitation clauses were only reasonable if:

Answer 30

> 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

Question 31

George Mitchell v Finney Lock Seeds

Answer 31

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.

Question 32

s.62 CRA 2015

Answer 32

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

Question 33

any terms relating to the main subject matter of the contract or the price are only fair if they are:

Answer 33

> transparent
AND
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