Exclusion Clauses Flashcards
What are exclusion clauses?
- Exclusion clauses = terms that exclude/limit liability for a party when they breach the contract
-> Allowed due to freedom of contract but courts may intervene rarely e.g. to stop party in stronger bargaining position from exploiting other party
How does an exclusion clause take effect?
If passes 3 stages:
2) Construction
- What does the term actually mean?
- Does it mean what is says? (in the context of the contract)
3) Satisfies statute
- UCTA 1977 - b2b
- UCTR 1999 - b2c
- CRA 2015 - b2c
What does incorporation contain?
Exclusion clause incorporated via:
a) Signature (L’Estrange v Graucob [1934])
- BUT, a signed contract can be challenged e.g if party only signed due to misrepresentation (e.g Curtis v Chemical Cleaning and Dyeing [1951])
b) Notice
i) Reasonable notice must be given about existence of the clause
ii) Reasonable notice must be given before/at the time the contract was made, not after
(e.g Olley v Marlborough Court [1949] - C pays for hotel room and notice of exclusion clause given inside room (not before/at time contract was made))
Also, reasonable notice means claimant must reasonably expect document to contain contractual terms (e.g Chapelton v Barry (1940) - exclusion clause on ticket received upon purchasing item seen too similar to a receipt, not expect to have contractual terms)
ALSO, if clause is particularly unusual, more notice is required (e.g J Spurling Ltd v Bradhshaw [1956] - “clause may need to be printed in red ink on document”)
c) Previous Course of dealings
i) There must be sufficient notice of the clause
-> Parties must have contracted a number of times before with this exclusion clause in place (e.g Spurling v Bradshaw [1956])
ii) There must be consistency in the previous dealings
-> So this contract must be similar to their previous contracts (e.g McCutcheon v David MacBrayne [1964])
What does “construction” contain?
- Construction of exemption clauses:
- Historically, very strict interpretation -> the plain words given no wider meaning than their scope requires (Wallis, Son & Wells v Pratt and Haynes)
- Ambiguous clauses will be interpreted contra proferentem -> against the party seeking to rely on it
– Examples:
-> Houghton v Trafalgar Insurance - car not insured for accidents if carrying an excess “load” – court interpreted word “load” did not cover extra passengers (interpreted in narrow way).
-> Middelton v Wiggins - insurance clause excluded liability for accidents arising from “disposal of waste” – court said waste did not cover gas leakage.
- S69 Consumer Rights Act: “If there is doubt about the meaning of a written term, the interpretation which is most favourable to the consumer shall prevail.”
- Special rules for terms seeking to exclude/limit liability for negligence
-> Canada Steamship Lines v The King (1952):- Especially clear words must be used – if the contract term expressly mentions negligence, then effect must be given to it
- If no express reference, are the words used ‘wide enough’ to cover negligence?
- Even if so, does the clause cover more than one type of liability – if so, it may be taken to exclude/limit non-negligent liability only
E.g. “loss howsoever caused” won’t exclude negligence
The modern approach: Since UCTA 1977 more protection against substantively unfair clauses
What statutes must it satisfy?
a) Unfair Contract Terms Act 1977
-> b2b contracts
-> only applies to exclusion/limitation clauses
-> makes some clauses void automatically, other clauses must pass test of ‘reasonableness’ (s11)
-> S2(1) - Cannot exclude/restrict liability for death/personal injury resulting from negligence –> only really this applies when small businesses are dealing with larger business (still very exploitative, whereas loads of protections for consumers dealing with business, rightly so)
-> S6 - Cannot exclude clauses that are implied by statute (e.g CRA 2015)
- S11(1) - ‘the term shall be 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’
-> Reasonableness depends on: (schedule 2)
i) Strength of bargaining positions of parties
- If a clause is a generally accepted clause in particular industry, it is more likely to be reasonable, especially if the parties are of equal bargaining power (George Mitchell v Finney Lock Seeds (1983)
- If parties seeking to rely on an exclusion clause could have easily insured themselves against the liability
e.g. Photo Production v Securicor (1980) – exempting liability for fire (property owner would have insured against fire anyway) - reasonable
* Ultimately, reasonableness is a question of fact. The test of reasonableness is a balancing act: weighing certain set of considerations against other
* Courts are less likely to intrude into contracts between business parties of equal bargaining strength (remember, freedom of contract and sanctity of contract)
b) Unfair Terms in Consumer Contracts Regulation 1999
-> Only b2c contracts
-> test of fairness applied
c) CRA 2015
-> b2c contracts
-> s62 requires all consumer contract terms and notices to be fair
–> requirement of good faith:
(1) openness & transparency - must be plain language, clear so consumer knows what they’re dealing with, not trick consumer with “fine prints” (e.g. Green v Petfre (2021): terms were opaque, difficult and meaning not clear to average consumer)
(2) fair dealing - supplier not take advantage of consumer’s necessity, lack of experience, weak bargaining position, etc. (The Office of Fair Trading v First National Bank plc) -> if they were on equal footing, would supplier have agreed contract (Aziz (2013))
e.g. ParkingEye (2015) - charge of £85 for overstay at car park exorbitant but terms clear and legitimate purpose: to generate high turnover of cars (benefit to consumer)
-> ‘grey list’ of unfair terms
e.g. terms that exclude liability for faulty + misdescribed goods, poor service, impose unreasonable burdens on consumers
-> terms should be transparent + prominent
-> S69 Consumer Rights Act: “If there is doubt about the meaning of a written term, the interpretation which is most favourable to the consumer shall prevail.”
-> s31 liability cannot be excluded for goods to be of satisfactory quality, as described, etc.
-> s57 - of reasonable skill
–> Unfair terms severed, leaving rest of contract binding (s67)
Also, court cannot look at subject matter of contract but can with surrounding terms around that
e.g. not job of court to decide if price is too high/low but these terms can be construed narrowly and restrictively
-> can’t look at price exactly but could look at time of payment, how paid, whether it is fair to consumer to make late payments/charged excessive fee for cancelling contract, etc.
