Exemption clauses Flashcards
What is an exemption clause?
A contractual term that purports to limit or exclude a liability that would otherwise attach to contracting party
Obligations affected can be contractual, tortious or both
When determining if a party can rely on an exemption clause, what 3 things must be considered?
- Incorporation
- Construction
- Statutory controls
What happens if there is any doubt on the meaning or scope of the exemption clause?
Contra proferentem
The ambiguity will be resolved against the party seeking to rely on it (so clear words must be used)
General rule re exemption clauses
Houghton - car carrying 6 passengers but designed to carry 5 was involved in accident, D insurance company sought to rely on clause which excluded liability for damage arising whilst the car is conveying any load in excess - court held ‘load’ could not refer to passengers as words were not plain enough; ambigous clause construed against the proferens
When will the court apply the contra proferentem rule with less rigour?
Where clause in question merely limits (rather than excludes) liability
What are the ‘Canada Steamship rules’
On exemption clauses seeking to exclude liability resulting from own negligence
Cases where the only basis for liability is negligence = covers negligence
Cases where the party will be liable irrespective of negligence = does not cover negligence
The use of general words is decided on this distinction
NB contra-proferentum rule now has limited role re contracts negotiated between parties of equal bargaining power
Can a third party benefit from an exemption clause?
I.e. someone not party to the contract
No!!
Privity of contract means a party outside the contract cannot benefit
When is the UCTA considered? What contracts does it concern?
Unfair Contract Terms Act
- Must be considered once it is decided the exemption clause has been incorporated and properly construed (is the ‘statutory control’
- Concerns contracts between businesses (b2c governed by CRA)
Its purpose is to impose limits on extent to which liability for breach of contract/negligence can be avoided by contract terms
How does UCTA achieve its purpose?
Purpose = impose further limits on the extent to which […] liability for breach of contract, of for negligence or other breach of duty, can be avoided by means of contract terms and otherwise
By ensuring that a) certain types of exemption clause have no effect and b) limiting effectiveness of clauses only so far as they satisfy requirements of reasonableness
How to decide if the UCTA or CRA applies re exemption clauses?
Both parties acting in course of business = UCTA
One party acting in course of business and other party not = CRA
Where neither acting in course of business = neither apply
Re negligence liability under UCTA, can only common law duty to exercise reasonable care/skill be the subject of exemption?
No - any obligation arising from express/implied terms of contract to take reasonable care/skill can be covered by UCTA
As well as common law duties
I.e. UCTA’s definition of negligence liability covers both obligations re negligence under contract and common law duties re negligence
What forms of negligence liability can/cannot be exempted under UCTA?
Attempt to exclude/restrict liability for death or personal injury = term void
Attempt to exclude (any other) loss resulting from negligence = valid if reasonable
Can liability for breach of statutory implied terms about the quality of goods be exempted under UCTA?
Only if reasonable
When does UCTA cover breaches of contract?
Negotiated v standard terms
If the term limiting liability is in a negotiated agreement = UCTA does not apply
If the term limiting liability is in a party’s standard terms = UCTA applies and will find term valid if reasonable
A party cannot by reference to any contract term claim to be entitled to a) render performance substantially different from what was reasonably expected or b) to render no performance at all
What does ‘standard terms’ mean under UCTA?
Even where party’s general terms are the subject of negotiation, they can still be considered a party’s standard terms for the purposes of UCTA
And so be regulated by UCTA
What is UCTA’s role in individually negotiated B2B contracts?
I.e. not written standard terms
Exclusions/limitations on liability for breach in individually negotiated B2B contracts are not regulated by UCTA (unless relating to areas covered by UCTA like death, PI or negligence)
What factors are considered by the UCTA reasonableness test?
Judged at the time contract was made
- Strength of bargaining positions
- Whether customer received inducement to agree to term
- Whether customer knew/ought to have known of the existence and extent of the term (e.g. custom of trade)
- (If subject to a condition) whether it was reasonable at time of contract to expect compliance would be practical
- Whether goods manufactured, processed or adapted to special order of customer
Guidelines can be used more widely
Virtually no precedent; very fact-dependent
What negligence is covered by the CRA?
- Obligation arising from express/implied terms of contract to take reasonable care/skill
- Common law duty to take reasonable care/skill
- Common law duty imposed by Occupier’s Liability
What exemption clauses do not bind the consumer under the CRA?
Remember - consumer to business under CRA
- Any liability arising from death or personal injury resulting from negligence
- Any liability arising from implied terms about goods/digital content re satisfactory quality, fit for purpose, and as described
- Any liability arising from the service to be performed with reasonable care and skill to the extent that it would prevent the consumer from recovering the price paid (i.e. liability cannot be limited to less than the price paid)
How does the CRA deem a term to be ‘unfair’?
For any term in a consumer contract
Terms specifying the main subject matter of the contract cannot be assessed for fairness provided that terms are transparent and prominent!
A term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer
Judged at the time contract was entered into
What anti-avoidance provisions are enforced by the CRA?
Provisions that combat terms trying to subvert the CRA exemption rules
- A party cannot make a separate contract where the other party agrees not to pursue claims regarding the main contract (parallel/secondary contract)
- A party cannot make the liability or its enforcement subject to certain onerous conditions or limit the remedies/court procedures available
Will exemption clauses operate for implied terms under SoGA and CRA?
- SoGA = cannot be excluded unless it satisfies reasonableness
- CRA = any attempt is not binding on consumer
