Exclusion Clauses Flashcards
Exclusion clauses
Clauses that are inserted into contracts to reduce or exclude the liability of either party where certain cases (eg breach of contract) occur.
They can operate legitimately where both parties have equal bargaining power, but it is common that parties have unequal bargaining power and the exclusion clause may unfairly limit liability, particularly where consumers are involved.
Typically the more dominant party (business) seeks to rely on an exclusion clause to the detriment of of the other party (consumer).
Common law control of exclusion clauses
The courts have devised two rules which indicate whether to accept or deny it:
1) The clause must be incorporated into the contract
2)The clause will be constructed/interpreted by courts
The clause must be incorporated into the contract
Exclusion clauses must be brought to the attention of the other party before or at the time the contract was formed. This is generally: by signature or by reasonable notice.
By signature
The maxim ‘caveat emptor’ applies, where the general rule is you agree to what you sign for and are bound by the exclusion clause (which is now a term of the contract), regardless of whether they have been read and understood
The rule in L’Estrange v Graucob
By reasonable notice
When separate written terms are presented, the exclusion clause will only be binding if the recipient had reasonable notice of it and had express knowledge of it at the time of the contract.
The general rules for knowledge of the exclusion clause are:
1) Did the party have knowledge of the clause (e.g. previous course of dealings or trade custom)?
- Previous course of dealings - if parties have contracted before where that contract contained an exclusion clause, that clause may also apply to subsequent contracts and may be binding on the basis of previous knowledge, even if the clause wasn’t brought to party’s attention this time (must be regular dealings though)
2) Were reasonable steps taken to bring the exclusion clause to the attention of the other party?
- A ticket with an exclusion clause on the reverse is generally insufficient
The clause will be constructed/interpreted
To determine if the exclusion clause operates to protect the party relying upon it from breach and damage caused, rather than a seek to gain undue advantage over other party.
The main rule of construction is the Contra Proferentem rule:
Any ambiguity in the clause must be resolved against the party relying on the clause and interpreted in favour of the other party
Statutory control of exclusion clauses - UCTA 1977 (business contracts)
The Unfair Contract Terms Act 1977 was introduced to give businesses greater protection due to unfair bargaining power, and applies to business contracts. The Act imposes limitations and makes certain exclusion clauses void, and others only enforceable and valid if they satisfy the test for reasonableness under s11 of the UCTA 1977.
UCTA 1977 sections
Void:
- S2(1) - a party cannot rely on an exclusion clause that tries to exclude or restrict their liability for death or personal injury resulting from negligence
Valid if reasonable:
- S2(2) - in cases of other loss or damage from negligence , a person cannot exclude or restrict their liability unless if the term or notice satisfies the requirement of reasonableness (s11)
- S3 - where a party deals on a business’s standard form of contract, the business can’t exclude/limit its liability for breach, provide a different performance to what’s reasonably expected, or provide no performance at all, unless their actions satisfy the requirement of reasonableness (s11)
- S6 - clauses that are implied by statute (eg CRA 2015) can’t be excluded
Test for reasonableness (not specifically defined in the Act, but s11 provides assistance):
- S11(1) - (the court shall ask itself) ‘the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made’
Statutory control of exclusion clauses - CRA 2015 (consumer contracts)
Introduced to give consumers robust protection against imbalance of power in consumer contracts.
S31 (goods) - Prohibits traders from excluding/limiting their liability for s9, s10 and s11 for the supply of goods. Purported exclusions of liability by traders would be rendered wholly ineffective and inefficient under s31.
S57 (services) - Prohibits traders from excluding or limiting their liability for the supply of services for s49. Purported exclusions of liability by traders would be rendered wholly ineffective under s57.
S62 - Unfair terms are not binding and cause significant imbalance to consumer’s rights. Key contract terms may be assessed for fairness unless they are prominent and transparent.
- S62(3) - doesn’t prevent consumer from relying on term if they choose to do so
S65 (negligence) - Bar on the exclusion or restriction of negligence liability
- S65(1) - clauses that attempt to exclude/restrict liability for death or personal injury from negligence are invalid
- S65(2) - consumer is not to be taken to have voluntarily accepted the risk merely because they agreed to/knew about the term
L’Estrange v Graucob
Incorporation and by signature
The clause must be properly incorporated into the contract and be brought to the party’s attention when the contract was formed.
Even if the terms were printed on the back of the contract or in small print, signed contracts are often still enforceable and the party was bound despite not reading the terms.
Olley v Marlborough Court Hotel
By reasonable notice - reasonable steps
Notice was ineffective as it was brought to the party’s attention after the contract was made.
Chapelton v Barry UDC
By reasonable notice
The clause invalid as it wasn’t incorporated into the contract it was a mere receipt given after contract was made.
Hollier v Rambler Motors (AMC) Ltd
By reasonable notice - previous dealings
Construction - Contra Proferentem rule
The exclusion clause was not incorporated as the dealings between the parties were not regular enough (3-4 were insufficient).
Wording was found insufficient to exclude negligence unless expressly stated.
Andrews Bros v Singer Cars
Construction - Contra Proferentem rule
The clause was not effective as it didn’t cover the loss in question
Exclusion clauses plan
Issue - Does an exclusion clause unfairly limit liability?
Define exclusion clauses and how they operate
Common law control:
1) The clause must be incorporated into the contract - L’Estrange v Graucob
- By signature
- Maxim ‘caveat emptor’ - you agree to what you sign and are bound, regardless off if it has been read or not
- By reasonable notice - Chapelton v Barry UDC
- Must have express knowledge of the clause. Rules for this are:
1. Did the party have knowledge of the clause (e.g. trade custom, previous dealings)? - Hollier v Rambler Motors (AMC) Ltd
2. Were reasonable steps taken to bring the clause to the attention of the other party? - Olley v Marlborough Court Hotel
Apply…
2) The clause will be constructed by courts
- To determine whether the clause is for protection from breach, or to gain undue advantage
- Contra Proferentem rule - any ambiguity in the clause must be interpreted in favour of the other party - Hollier v Rambler Motors (AMC) Ltd, Andrew’s Bros v Singer Cars
Apply…
Statutory control:
1) UCTA 1977 - business contracts
- Introduce
- S2(1) - void for exclusion clause for death or personal injury resulting from negligence
- S2(2) - for other loss or damage from negligence, cannot exclude or restrict unless the term or notice satisfies reasonableness
- S3 - business’s standard form of contract - business can’t exclude/limit its liability for breach, provide a different performance to what’s reasonably expected, or provide no performance at all, unless actions satisfy reasonableness
- S6 - clauses that are implied by statute (eg CRA 2015) can’t be excluded
S11(1) - test for reasonableness (not defined but provides assistance) - George Mitchell v Finney Lock Seeds, Goodlife Foods Ltd v Hall Fire Protection
Apply…
2) CRA 2015 - consumer contracts
- Introduce
- s31- supply of goods (s9, 10,11)
- s57 - supply of services (s49)
- s62 - unfair terms aren’t binding
- s62(3) - doesn’t prevent consumer from relying if they choose to
- s65 - bar on negligence
- s65(1) - exclusion clauses for death/personal injury are invalid
- s65(2) - consumer not to be taken as voluntarily accepting risk merely because of knowledge or agreement of it
Apply…
Conclusion - If exclusion clause doesn’t satisfy common law control tests, party cannot rely on it. Statutory control: UCTA 1977 protects businesses and CRA 2015 protects consumers.
George Mitchell v Finney Lock Seeds
UCTA 1977 - reasonableness
The exclusion clause was unreasonable as the farmer would not have been aware of the fault whereas the supplier would have
Goodlife Foods Ltd v Hall Fire Protection Ltd
UCTA 1977 - reasonbleness
The clause was not unusual nor void for unfairness, therefore was decided as reasonable and party could rely on it.
