Exclusion Terms Flashcards
Definition
An exclusion clause is a term of a contract that attempts to
exclude (or limit) the liability of one of the contracting parties.
D
3 issues to be considered
- The clause must (1) have been **incorporated into the relevant contract. **The rules onincorporation are relevant to the incorporation of any terms on which a party seeks to rely, but they are most commonly
encountered in the context of exclusion clauses. - The clause must (2)** be properly drafted **so that it is construed—in other words, interpreted—as excluding liability effectively. It must be drafted so that its wording covers the loss that has been suffered.
- The clause must (3) not be prohibited by statute. In most
cases, the relevant legislation is the Unfair Contract Terms Act 1977 or the Consumer Rights Act 2015. These Acts prohibit certain clauses altogether (for example, clauses excluding or limiting liability for death or personal injury caused by negligence). In other cases, the legislation may permit anexclusion or limitation if it** passes a test of fairness or reasonableness.**
incorporation
An exclusion clause must be incorporated into the contract
at the time when or before the contract is concluded. Any
clause (not just an exclusion clause) can be validly incorporated into a contract in three ways: (1) by signature, (2) by notice, or (3) through custom or previous dealings.
incorporation by signature
- principle
Very simply put, a party who signs a contractual document is bound by its terms. It is no defence not to have read or understood the terms, including any exclusion clause, in the
‘small print’.
2.exceptions
(1) where a party is induced to enter into the contract by some form of oral misrepresentation which will operate to override the written contractual terms.
(2) The second is the defence of** ‘non est factum’**, which means that a party has **no understanding of the document they have signed and that there was a fundamental difference **between what they
signed and what they thought they had signed.
incorporation by notice
- definition
For an exclusion clause to be incorporated through notice, the
party seeking to rely on it must have taken reasonable steps
to bring it to the attention of the other party.The fact that the innocent party is illiterate and unable to read the clause will not prevent it being incorporated. - contractual document required
To be valid, the clause must have been incorporated or referred to in a document intended to have contractual effect.
3.timing
Any exclusion
clause must have been brought to the attention of the other
party before or at the time the contract was concluded.
incorporated through Custom or Previous Dealings
Between the Parties
- Industry custom may be enough to incorporate a term into a contract.
- In addition, if it can be shown that the parties have an established record of contracting with each other on standard terms and conditions, the courts are likely to find that, on a subsequent occasion, the terms and conditions that had previously been brought to their attention would still apply.
- A party attempting to rely on an exclusion clause must be able
to show a regular and consistent course of dealings. wht consitutes a regular and consistent course of dealing is unclear.
construction
- Wording Must Be Clear and Unambiguous and Cover the Loss Suffered
- . It means that if there is any ambiguity when interpreting an exclusion clause, the courts will interpret theambiguity against the party seeking to rely on the clause
UNFAIR CONTRACT TERMS ACT 1977
(“UCTA”)
1. The UCTA regulates exclusion clauses only in business-to-business contracts.
2. * Any clause that attempts to exclude liability for death or
personal injury caused by negligence (whether arising
from a breach of a contractual duty to take care or in tort by virtue of a common law duty) will be automatically void;
* Any clause that attempts to exclude liability for any otherloss caused by negligence, for example, damage to property, will be void unless reasonable;
* Liability for breach of the implied condition as to title under the Sale of Goods Act 1979 or the Supply of Goods and Services Act 1982 cannot be excluded or restricted by contract;
* Liability for breach of obligations as to compliance with** description, quality, or fitness** for purpose under the Sale of Goods Act 1979 or theSupply of Goods and Services Act 1982 cannot be excluded or restricted by contract unless reasonable; and
* If one party contracts on its standard form terms and conditions, it cannot rely on a term that (1) excludes or
restricts its liability for breach of contract, (2) reserves the right to render contractual performance substantially different from what was expected, or (3) renders no contractual performance at all, in each case unless reasonable.
reasonableness requirement
- The UCTA test of reasonableness requires the term in question to “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”
In determining whether a term is ‘fair and reasonable’, courts will consider factors including the following(The UCTA test):
- The strength of the **bargaining positions **of the parties relative to each other;
- Whether there was any** inducement** received by the
customer to agree to the term in question, or whether the customer had the opportunity to enter into a similar
contract but without having to accept a similar term; - Whether the customer **knew or ought reasonably to have known **about the existence and extent of the term in question (referring in particular to any custom or trade or course of previous dealings between the parties);
- When the term in question excludes or restricts liability if a condition was not complied with, whether it was reasonable at the time of the contract to conclude that compliance with such a condition was practicable; and
- Whether the goods were **manufactured, processed, or
adapted to the special order of the customer (in which case the clause is more likely to be reasonable)
Reasonableness in Practice(The UCTA test):
a. Limitations of Liability
It is common for exclusion clauses in a commercial contract to limit liability rather than seek to exclude altogether
The UCTA specifically provides that, when deciding whether a limitation clause isreasonable, the courts must also consider (in addition to the
other factors) the resources available to the party relying on
the clause to meet the liability and whether it was open to them to protect themselves using insurance
b. Reasonableness of Incorporation
The test under the UCTA is whether it was reasonable to include the clause in the contract, not whether it is reasonable to rely on it. This means that** reasonableness is considered at the time when the contract was concluded**, having regard to what the parties knew at the time. The test is not whether it is reasonable to rely on the clause in relation to the breach which has occurred.
c. Burden of Proof
It is for the party relying on the clause to prove that it is reasonable
d. Freedom of Choice
the court will not usually interfere with contract that has been freely negotiated between two commerciao parties. However, alcause in negotiated compercial contract may still be found to be unreasonable if the customer really had no choice aout accepting it.
e. Outcome Hard to Predict
it is difficult to predict whether a clause will be found to be reasonable or not. The best that a lawyer can do is to warn their client of the risk that it may not be upheld.
CONSUMER RIGHTS ACT 2015
scope
- It applies solely to contracts
between traders and consumers. - For the purposes of the CRA,
a consumer must be an individual. Note that certain types of
contracts, in particular apprenticeship contracts and contractsof employment, are outside the scope of the CRA
Trader under CRA
:“a person acting for purposes relating to that person’s** trade,business, craft, or profession**, whether acting personally or through another person acting in the trader’s name or on the
trader’s behalf”.
consumer under CRA
: “an individual acting for purposes that are** wholly or mainly **outside the individual’s trade, business, craft, or profession”.
prohibited terms under CRA
- Under the CRA, as against a consumer a trader cannot exclude or limit the statutory implied terms as to title, compliance with description, quality, or fitness for purpose.
- Similarly,a trader cannot exclude or limit the statutory implied term under which a service must be provided with reasonable care and skill, or liability for breach of the statutory implied termunder which a service must be provided within a reasonabletime (where no time has been agreed).
- any clause in a trader/consumer contract that attemptsto exclude liability for death or personal injury as a result ofthe trader’s negligence is prohibited under the CRA, just as itwould be void under the UCTA.
