Exemption Clauses

Question 1

What are the three ways an exemption clause can be incorporated into a contract?

Answer 1

Signature;

Reasonable notice;

Previous and consistent course of dealings.

Question 2

What are the two tests dealing with exemption clauses?

Answer 2

Incorporation and construction.

Question 3

Explain the test for construction in relation to exemption clauses.

Answer 3

Question is whether clause was intended to exclude or otherwise limit liability for the particular breach ad the loss occurred.

This may be straightforward (eg a notice in a car park saying cars parked at owner’s risk).

If not straight forward the contra proferentem rule is used (ie ambiguity will mean the clause will be construed against the person seeking to rely on it).

Question 4

Give an example of the contra referendum rule being used.

Answer 4

Exclusion clause stating ‘company not responsible for damage caused by fire to customers’ cars on the premises’.

Fire started by D’s negligence at their garage where the car was being repaired.

Court held the exclusion clause was a warning they would not be liable for accidental fire damage.

Question 4

What is the result of an exemption clause excluding the claimant’s right to terminate the contract?

Answer 4

The claimant would likely still be able to claim damages.

Question 5

What does UCTA 1977 govern in relation to exemption clauses?

Answer 5

Exemption clauses in business to business contracts.

Question 6

What does the CRA 215 govern in relation to exemption clauses?

Answer 6

Exemption clauses in business to consumer contracts.

Question 7

Explain the controls placed on business to business exemption clauses by UCTA 1977.

Answer 7

1 D can’t exclude liability for death or perusal injury arising from negligence;

2) D can’t exclude liability for their own breach of an expressly agreed term.; and

3) The term of exclusion is subject to the reasonableness test. It must satisfy this otherwise D cannot exclude or restrict their liability by reference to it.

Question 8

Explain the UCTA reasonableness test.

Answer 8

It must have been fair and reasonable to include in the contract, judged at the time of the contract by taking into account all circumstances including what the parties knew or ought to have known.

Question 8

Can D (in business to business contracts) exclude lability for statutory implied terms under UCTA 1977?

Answer 8

Yes provided they satisfy the reasonableness test.

Question 8

Give some examples of when a clause is more likely to be reasonable under UCTA 1977.

Answer 8

1) Experienced business people representing two large companies enter into a freely negotiated contact - more likely reasonable when agreed between two substantial businesses.

2) Buyer chooses to accept exemption clause in return for a lower price - more likely to be reasonable.

3) Very clearly pointed out in the contract and not buried in fine print - more likely to be reasonable.

Question 8

Give two examples of when it is less likely the exemption clause will satisfy the reasonableness test under UCTA 1977

Answer 8

1) Seller is a large insists on using their standard terms which contain exemption clauses. Buyer will likely be smaller so inequality of bargaining power makes the clause less reasonable;

2) If the clause is buried in the small print, it will be less likely to be reasonable.

Question 9

List some of the schedule 2 guidelines in UCTA 1977 which the courts use to help determine whether the clause was reasonable.

Answer 9

1) Strength or the parties’ bargaining power;

2) Did buyer receive inducement to accept the expulsion clause.

3) Whether buyer knew or ought to have known of the existence and then extent of the clause, taking into account previous dealings swell as any customs in the trade.

4) Could D have taken insurance at reasonable price instead of relying on the clause.

Question 9

Give an example of when it is mandatory for the courts to consider the schedule 2 guidelines in UCTA 1977.

Answer 9

When the case involves the supply of goods.

Question 10

When is a term in a sales contract not binding on the consumer?

Answer 10

Where it:

1) exlucdes liability for s9-11 of the CRA 2015;

2) makes such a right or remedy or its enforcement subject to a restrictive or onerous condition;

3) allows trader to put person at a disadvantage as a result of pursuing such a right or remedy; or

4) excludes or restricts evidence or procedure.

Question 10

Explain the terms of the CRA which CANNOT be excluded by exemption clauses in business to consumer contracts.

Answer 10

s9 (Satisfactory quality);

s10 (Goods fit for particular purpose);

s11 (Goods as described).

s49 (Service to be carried out with reasonable care and skill).

s51 and 52 (Reasonable price and reasonable time).

Question 11

Summarise what traders cannot exclude liability for in relation to CRA 2015 implied terms for services.

Answer 11

Traders cannot:

1) Exclude or restrict a right or remedy in respect of liability arising from breaches of ss 49-51 CRA 2015;

2) Make such a right or remedy or its enforcement subject to a restrictive or onerous condition; or

3) Put a person at a disadvantage as a result of pursuing such a right or remedy, or exclude or restrict rules of evidence or procedure.

Question 12

What is the general rule in relation to exemption clauses in contracts protecting third parties?

Answer 12

General rule is exemption clauses in contracts cannot protect a third party due to contract privity.

An exception to this rule is that provided a third party is named in the exemption clue, or identified as a member of a class entitled to benefit from it, the third party can rely on the emption to the same extent as the relevant contracting party.