Exclusion Clauses

Question 1

What is an exclusion clause?

Answer 1

A contract term that excludes or limits liability of one of the contracting parties

Question 2

What are the three rules governing exclusion clauses?

Answer 2

1. Incorporation of clause into contract
2. Properly drafted so that loss suffered is covered
3. No statutory prohibition on the clause (Consumer Rights Act, Unfair Contract Terms)

Question 3

What should you do when considering whether a clause is effective in excluding or limiting liability?

Answer 3

Work out what liability may exist but for the exclusion and then decide if the clause is effective in excluding it

Question 4

When must an exclusion clause be incorporated into a contract?

Answer 4

At the time when or before the contract is concluded

Question 5

When is a term of a contract validly incorporated into the contract?

Answer 5

1. By signature
2. By notice
3. Through custom or previous dealings

Question 6

How is a term incorporated by signature, and can you use the defence that you did not read the terms to get out of being bound?

Answer 6

A party who signs a contract is bound and not reading the terms is not a defenceW

Question 7

What are the exceptions to the rule that a party signing a contract is bound by the contract?

Answer 7

1. If the party was induced to contract by oral misrepresentation
2. Non est factum - party has no understanding of the document they signed and there is a fundamental difference between what they signed and what they thought they signed

Question 8

Is the defence of non est factum to the rule that a signing party is bound by contract likely to succeed if the document was properly explained to them?

Answer 8

No

Question 9

How can an exclusion of liability clause be incorporated by notice?

Answer 9

One party must take reasonable steps to bring it to attention of the other party

Question 10

If an innocent party is illiterate and unable to read a clause, will it still be incorporated by notice if proper notice is given?

Answer 10

Yes

Question 11

What are the two elements needed for proper incorporation of an exclusion clause by notice?

Answer 11

1. Contractual document required - a receipt is not enough because its provided after the transaction, but a train ticket is provided at the time the contract is concluded
2. Timing - bat or before the contract was concluded

Question 12

Can an exclusion clause be incorporated through custom or previous dealings between the parties?

Answer 12

Yes, if you show that the parties have a record of contracting on standard terms which were previously brought to their attention (REGULAR + CONSISTENT course of dealings)

Question 13

How should an exclusion clause be constructed?

Answer 13

1. Wording must be clear and unambiguous
2. Loss must be covered
3. Keep in mind contra preferentum rule

Question 14

What is the contra preferentum rule?

Answer 14

If there is ambiguity in an exclusion clause, it will be interpreted against the party seeking to rely on the exclusion

Question 15

To whom does the Unfair Contract Terms Act 1977 (UCTA) apply?

Answer 15

B2B contracts

Question 16

What exclusion clauses are not permitted under UCTA?

Answer 16

1. Liability for death or personal injury caused by negligence = automatically void
2. Any loss caused by negligence = void unless reasonable
3. Breach of implied condition of title under SAGA or SGSA
4. Breach of compliance with description, quality or fitness for purpose under SGA or SGSA unless reasonable
5. When contracting on standard terms, you cannot rely on exclusions of (a) breach of contract (b) reserves right to render contractual performance substantially different from what was expected (c) renders no contractual performance at all

Question 17

What does the UCTA term for reasonableness require?

Answer 17

Term must have been fair and reasonable to be included having regard to circumstances which are or ought to reasonably have been known to or in contemplation when contract was made

Question 18

What factors form part of the UCTA reasonableness test?

Answer 18

1. Bargaining strength
2. Any inducement received by customer to agree
3. Whether customer knew/ought reasonableto have known about existence and extent of term
4. For exclusions of liability for conditions, if it was reasonable at time of contract to conclude that compliance with such condition was practicable; and
5. Whether goods werre made to special order

Question 19

How do the courts approach a limitation (rather than exclusion) of liability?

Answer 19

Favorably, and they look to see the resources available to the party relying on the clause and if they could have used insurance

Question 20

The test for reasonableness is whether it is reasonable to include the clause on the contract not whether….

Answer 20

it is reasonable to rely on it

Question 21

Who bears the burden of proof on reliance on an exclusion clause?

Answer 21

The party relying on said clause

Question 22

What is a “customer” for purposes of the CRA?

Answer 22

An INDIVIDUAL acting outside their trade/business/craft/profession

Question 23

What is a “trader” under the CRA?

Answer 23

A person acting for purposes of their trade

Question 24

What contracts do CRA not apply to?

Answer 24

1. Employment
2. Apprenticeship

Question 25

What terms are prohibited by CRA?

Answer 25

1. Exclusion/limitation of implied terms for title, compliance with description, quality or fitness for purpose
2. Exclusion/limitation of duty to provide reasonable care, skill or in a reasonable time (where no time is agreed)
3. Exclusions of liability for death or personal injury for negligence

Question 26

What terms are unfair under CRA?

Answer 26

Contrary to good faith +
Causes imbalance in parties rights and obligations +
to detriment of consumer

Question 27

What are the transparency and legibility requirements under CRA?

Answer 27

Terms must be plain and intelligible and legible

Question 28

Under CRA, what happens if there is an ambiguous term?

Answer 28

Interpret in favour of the consumer

Question 29

What is the effect of an unfair term under CRA?

Answer 29

Not binding on consumer unless they choose to rely on it and the term is severed from contract

Question 30

Can a government enforcement agency get a court injunction to restrain traders from using unfair terms?

Answer 30

Yes

Question 31

Name some potentially unfair terms under CRA?

Answer 31

1. Exclusion/limitation of liability for death/personal injury for acts other than negligence
2. Break fees that are excessive or payment for services not supplied
3. Termination by trader without reasonable notice except where there are serious grounds to do so
4. Unilateral amendment of terms without valid reason specified in the contract
5. Giving trader discretion to set price after contract binds without a method to determine the price
6. Excluding right to take legal action/exercise legal remedy

Question 32

To what terms does the fairness test not apply?

Answer 32

If term specifies the main subject matter of contract
If term specifies price payable
PROVIDED that term is transparent and prominent (brought to consumers attention)