Exemption Clauses Flashcards
Quick Q:
A man goes into a car repair garage to have a new tyre fitted to his car. Whilst undertaking the work, the garage negligently fitted the tyre so that, when he drove it home, the tyre came off the wheel which resulted in the car hitting the ground. Fortunately the man was uninjured but his car was damaged significantly. He has contacted the garage and the owner referred him to the copy of the invoice the man was handed after the tyre had been fitted. The invoice provides that,
‘The garage will not be responsible for any damage caused to vehicles caused by its negligence.’
The man has been to the same garage to have tyres fitted four times in the last two years and remembers being handed an invoice containing the same exemption clause on two of those occasions.
Will the exemption clause be incorporated into the contract between the man and the garage?
C- No, because while the dealings between the parties were regular, they were not consistent.
CORRECT ANSWER: C. The man has gone to the garage regularly over the last two years but, because he has been handed the invoice on some occasions and not others, the dealings between him and the garage have not been sufficiently consistent for the terms to be incorporated. This also explains why options B and D are wrong.
A client contracted with a company (the Company) to supply and install a new kitchen at their café. In the event the oven was inherently defective and had to be replaced. This delayed the reopening of the kitchen and as a result the client lost profit. The Company denied liability seeking to rely on the following clause which was printed clearly on the front of its invoice:
‘‘The Company shall not be liable for any loss of profit or business resulting from failure of the Products to comply with any express or implied terms.’’
If the client sues the Company for breach of contract will the Company be able to rely on the exemption clause?
A-No, because the clause was not incorporated in the contract.
B-No, because liability for defective goods cannot be limited or excluded.
C-No, because the clause is onerous and would not pass the reasonableness test.
D-Yes, because the clause satisfies the common law tests and would be deemed reasonable.
E-Yes, because the client would be better placed to insure against loss of profit.
Option A is correct. The clause was on the invoice a post contractual document and so would not be incorporated. There is nothing to suggest previous dealings.
Option B is wrong as liability for defective goods in a B2B work and materials contract can be excluded if it’s reasonable to do so- s7 UCTA.
The clause may be onerous but the main reason why the Company could not rely on the clause is because it was not incorporated. This is why options C, D and E are wrong.
A client contracted with a company (the Company) to supply and install a new gas boiler at their hotel. Unfortunately, the new boiler leaked into the dining room: one of the Company’s employees had not tightened a washer sufficiently tightly. As a result of this, the client has lost £1,000 profit due to cancelled bookings and has had to spend £2,000 repairing the plasterwork and wallpaper damaged by the leaking tank. The Company admits liability but drew the client’s attention to the following clause which was on the back of the signed contract in small but legible print:
‘‘The Supplier’s total liability for damage to Customer’s property caused by the negligence of its employees and agents in connection with this agreement shall not exceed £1,000 for any one event or series of connected events.’’
Which of the following best describes the legal position?
A-The clause had not been incorporated as the client had not been given reasonable notice of the clause before the contract.
B-The clause might be effective to limit the Company’s liability for the damage caused, but not for the loss of profit.
C-The clause is purporting to limit the negligence liability of both the Company and its employees.
D-The client would be awarded £1,000 as specified damages for breach of the implied term to exercise reasonable care.
E-The clause would be ineffective as a company cannot exclude or limit negligence liability.
Option B is correct. The clause would be incorporated by signature. As a matter of construction it is not purporting to limit liability for loss of profit. The clause might pass the reasonableness test under UCTA(s2(2)).
Option A is wrong as the clause would be incorporated by signature.
Option C is wrong as the clause is only seeking to limit the Company’s liability.
Option D is wrong as the clause is a limitation clause rather than specified damages.
Option E is wrong. Negligence liability for loss or damage can be excluded/limited as long as it is reasonable – s2(2) UCTA.
A company sold a security system for a hay-barn. The system failed when vandals set fire to the hay-barn, destroying it and the farm equipment and a vintage car also stored inside it. The damage totalled £75,000 but a clause in the company’s standard terms and conditions limits its liability for any loss to £1,000. The company wants confirmation this limit will be effective here.
Which of the following statements best describes the approach that a court would take in determining whether the limitation clause is valid?
A-The court must ignore the clause given the size of the actual loss sustained.
B-The court will uphold the clause if it was a reasonable limit to include based on what the parties knew or ought to have known at the time about the probable use of the hay-barn and its contents.
C-The court will uphold the clause if it was a reasonable limit to include based on what the parties knew or out to have known at the time about the probable use of the hay-barn and whether either party could have taken out insurance.
D-The court must uphold the clause. It is what the parties agreed and the size of the loss is irrelevant.
E-The court will ignore the clause if it was an unreasonable limit to include when taking into account the parties’ contemplated use of the hay-barn to store a vintage vehicle as well as farm equipment.
Option C is correct. The limitation clause will be subject to the Unfair Contract Terms Act (UCTA) and will be effective if a court judges the clause to be reasonable. The reasonableness test is set out in s 11 and depends not only on the parties’ knowledge (actual or constructive) at the time the contract was entered into (and whether in the light of that knowledge the clause was a fair and reasonable one to be included) but also on other factors such as those set out in s 11(4), Schedule 2 of UCTA and in case-law. The availability of insurance is a factor recognised by the courts when determining reasonableness. Option C therefore best reflects the approach the court would take when assessing whether to uphold the limitation clause.
Option A is wrong. The size of the actual loss sustained after breach has no bearing on whether a limitation of liability clause is or is not reasonable.
Option B is not the best answer. Although technically correct in part, it does not go as far as option C in identifying factors requiring consideration here.
Option D is wrong. Although it does correctly state that the size of the actual loss sustained after breach is irrelevant, the limitation of liability clause will still be subject to the reasonableness test under UCTA.
Option E is not the best answer. This is partly because it does not go far enough in identifying factors requiring consideration (as per option B), but also because it gives the impression that the limitation clause will be enforceable unless it is found to be unreasonable, whereas in fact the burden is on the party who wants to rely on the limitation clause to persuade the court that the clause is reasonable and therefore enforceable. Option E also appears to assert that there was knowledge that the hay-barn would be used to store equipment and a vintage care, which is not indicated by the facts.
A client took his taxi into the garage for a service. New brakes were fitted but as the client drove the taxi to the taxi rank the brakes failed. As a result the taxi was damaged and the client was injured. As yet the cause of the brake failure is unknown.
The contract with the garage does not contain any express terms about the quality of the new brakes or the level of service in fitting them but purports to exempt the garage from liability ‘for any loss or damage caused by defective parts or workmanship howsoever caused’.
Which of the following statements best describes the client’s potential legal position in relation to the garage and/or the employee who fitted the brakes?
A-If the client sues the garage for breach of contract, the garage will be liable for the personal injury but will not be liable for damage to the taxi if the exemption clause is reasonable.
B-If the brakes were not fitted properly the client can sue either the garage or employee for breach of the statutory implied term to carry out work with reasonable care and skill.
C-If the brakes were inherently defective the garage will not be in breach of contract because there are no express terms promising that the brakes would be of a certain quality.
D-If the client sues the garage for breach of the implied term to exercise reasonable care and skill the garage will be liable for damage to the taxi and the personal injury as the exemption clause does not specifically refer to negligence.
E-If the brakes were inherently defective and the garage is sued for breach of the implied terms as to quality and fitness the garage will be liable for the damage to the taxi and the personal injury caused.
The correct statement is A. Whatever the breach (SGSA 1982, s 4 or s 13) the exemption clause will be subject to the reasonableness test (UCTA 1977, s 7 or s 2(2)). The clause is not purporting to exclude liability for personal injury.
C is wrong. Notwithstanding that there were no express terms regarding the quality of the brakes fitted, terms as to quality and fitness fall to be implied under statute. The relevant statute would be the SGSA 1982. The contract was one for work and materials.
B is wrong as the client does not have a contract with the employee.
D is wrong. Although very clear words are needed to exclude liability for negligence ‘workmanship howsoever caused’ is likely to cover it. The garage will be liable for the personal injury in any event as the clause is not purporting to exclude liability for it.
E is wrong. The garage will be liable for the injury as the clause is not purporting to exclude liability for that (contra proferentem rule). The garage will only be liable for the damage if the clause does not pass the reasonableness test.
A-
B-
C-
D-
E-
Quick Q:
A client contracted with a company (the Company) to supply and fit a new kitchen at their home. The client paid the Company but then discovered the oven had not been installed properly and did not work. The client contacted the Company but was told it would have no engineers available to sort out the problem for three weeks and drew the client’s attention to the following clause which was in the contract signed by the client:
‘‘The Supplier shall not be liable for any loss or damage caused by negligence.’’
Which of the following best describes the legal position?
A-The client is entitled to a price reduction as repeat performance cannot be carried out within a reasonable time.
Option A is correct. This is a B2C contract and so CRA would apply. Where the term implied by s49 CRA has been breached the consumer should demand repeat performance but is entitled to a price reduction if repeat performance cannot be carried out within a reasonable time.
Option B. The first part is correct but liability for breach of the term implied by s49 cannot be excluded.
Option C is wrong. The client is entitled to a price reduction if repeat performance cannot be carried out within a reasonable time.
Option D is wrong. The client’s rights are first and foremost repeat performance and then a price reduction. Also the client would be bound to mitigate their loss.
Option E is wrong as CRA and not UCTA would apply.
Quick Q:
A client bought a new smart TV from a High Street retailer for their personal use at home. Three weeks later the client discovered an inherent manufacturing fault with the TV. When the client reported the problem the retailer denied liability on the basis it had effectively excluded liability: there was a clear notice at the payment point that said ‘The Seller accepts no liability for defective goods unless the defect is reported within 7 days of purchase’.
Which of the following statements best describes the client’s potential legal position in relation to the retailer?
E- The retailer would be liable for breach of the terms of quality and fitness implied by statute.
The correct statement is E.
As the client bought the TV for their personal use from a trader the CRA 2015 will apply. Section 9 is the implied term regarding satisfactory quality and s 10 is fitness for purpose. Both terms will have been breached due to the inherent defect and liability cannot be excluded or restricted.
A is wrong as s 9 of the CRA 2015 imposes strict liability.
C is wrong as the short-term right to reject lasts for 30 days. Acceptance is a bar to rejecting goods under the SGA 1979.
D is wrong because the remedies of repair and replacement are available under the CRA 2015.
B is wrong because the terms implied by ss 9 and 10 of the CRA 2015 are non-excludable (CRA 2015, s 31) and so the retailer will be liable.
Quick Q:
A chef bought a cooker for her restaurant. The chef signed a contract containing the following clauses:
“2. The Seller agrees to deliver and install the cooker by 1 February …
- The Seller does not accept any liability for loss or injury arising from the installation of the goods, howsoever caused.”
There are no other relevant terms.
The cooker was delivered on 4 February. One week later the cooker burst into flames injuring the chef and damaging the kitchen. The fire was caused by the seller’s engineer leaving a loose connection when installing the cooker.
The chef wishes to sue the seller for damages for her injuries and the cost of repairing the kitchen.
Which of the following statements best describes whether the chef can claim damages?
A- The chef can claim damages for her injuries and the cost of repairing the kitchen.
Option A is correct.
There is an implied term in a contract involving services that the service will be carried out with reasonable care and skill (s13 The Supply of Goods and Service Act 1982). Breach of the implied term will give rise to a claim for damages. The breach must have caused the loss.
Clause 15 has been incorporated into the contract by signature (L’Estrange v Graucob [1934] 2 KB 394). Clear words are needed to exclude liability for negligence (Houghton v Trafalgar Insurance [1954] 1 QB 247). The words ‘howsoever caused’ will be sufficiently clear to exclude liability for negligence (Canada Steamship Lines v The King [1952] AC 192).
A clause which excludes liability for personal injury caused by negligence (which includes breach of s 13) is void (s 2(1) UCTA 1977). A clause which excludes liability for damage to property caused by negligence is valid if reasonable (s 2(2) UCTA 1977).
The test for reasonableness is whether it was fair and reasonable to incorporate the term (s 11 UCTA 1977) and there are guidelines in Schedule 2 of the Act.
In this case, the seller cannot exclude liability for the chef’s personal injuries. Furthermore, clause 15 is unlikely to be reasonable in its exclusion of liability for damage to property. This is because of the breadth of the clause and the fact it attempts to exclude all liability. A court is likely to rule that the clause is unreasonably wide and so unenforceable.
Quick Q:
A client bought a new computer from a commercial retailer for their personal use at home. Three weeks later the computer broke down due to an inherent manufacturing fault. When the client reported the problem the retailer denied liability on the basis it had effectively excluded liability: there was a clear notice at the payment point that said ‘The Seller accepts no liability for defective goods unless the defect is reported within 7 days of purchase’.
Which of the following statements best describes the client’s potential legal position in relation to the retailer?
B- The retailer would be liable for breach of the terms of quality and fitness implied by statute.
The correct statement is B.
As the client bought the computer for their personal use from a trader the CRA 2015 will apply. Section 9 is the implied term regarding satisfactory quality and s 10 is fitness for purpose. Both terms will have been breached due to the inherent defect and liability cannot be excluded or restricted.
Can negligence liability for personal injury be excluded in a contract?
Under the Unfair Contract Terms Act negligence liability for personal injury cannot be excluded. It is possible to exclude liability for damage caused by negligence as long as it is reasonable to do so. When considering reasonableness the clause has to be judged as a whole and it is significant that the parties were not businesses of equal bargaining power. It is likely therefore that the exemption clause will not be effective.
Quick Q:
A client operates an electrical installation business supplying and fitting electrical systems for new build residential housing. The client completed work on time for a house builder last week pursuant to a supply and fit contract. The builder is unhappy with the work. The builder has explained that the electrical wiring does not satisfy UK safety standards and has caused damage to plastic trunking which will cost £25,000 to repair. The client has referred the builder to a clause in the contract under the heading “Delays” which states “The maximum liability which [the client] assumes for any breach of this contract is limited to £10,000.” The builder does not believe this clause is relevant to what has happened and the client should cover the full cost of the repairs.
If the court expresses concerns that the clause is ambiguous, which of the following statements provides the best advice on how the court might resolve that ambiguity?
C- The clause will be construed against the client who is seeking to rely on the clause.
Option C is correct. If a party tries to rely on a clause which is ambiguous or unclear, the court will interpret that clause against them. This is known as the contra proferentem rule.
For instance, in this case, the court could interpret the clause to mean that where losses are caused by any delay on the part of the client, then the client’s liability will be capped at £10,000; but for all other breaches of contract, the client’s liability will not be so limited.
Quick Q:
A computer company sells a new laptop to a customer who lives in Birmingham. The customer buys the laptop for personal use at home. The computer company has shops throughout England, but its head office is in Paris. In the written contract selling the computer, it is stated that the implied term as to goods being of satisfactory quality can only be enforced by a party to the contract on the condition that the goods are taken to the computer company’s head office in Paris for inspection. When the customer opens up the laptop at home, the customer finds that there is a large crack in the screen.
Does the customer have to take the laptop to the computer company’s head office in order to rely on the implied term as to satisfactory quality?
E- No, because the computer company has introduced an onerous condition, such that it is likely that the requirement to take the laptop to Paris for inspection would not be binding.
Option E is correct. The Consumer Rights Act 2015 provides that a term in a sales contract is not binding on a consumer to the extent that it makes enforcement of the implied term as to satisfactory quality subject to a restrictive or onerous condition.
Quick Q:
A man purchased a toaster from a supermarket. It came in a sealed box. The terms and conditions of the purchase included an exemption clause stating that:
“In the absence of any negligence by us, we shall not be liable for any damage to property or economic loss arising from the use of the product”.
As a result of a defect in its manufacture, the toaster caught fire, damaging kitchen cabinets in the man’s home.
Which of the following statements correctly describes the liability of the supermarket for the loss suffered by the man?
D- The supermarket is liable, because the exemption clause is not binding on the man, given the nature of the liability it seeks to exclude.
Option D is correct, given the nature of the liability the exemption clause is seeking to exclude. Liability for breach of the term that the quality of the goods is satisfactory cannot be excluded pursuant to section 31(1) of the Consumer Rights Act 2015. The exemption clause therefore is not binding on the consumer.
Quick Q:
A commercial client sells goods through a number of High Street stores and online to consumers. It is concerned that sometimes goods may turn out to be defective or otherwise not conform to the contract. It wants to exclude or limit liability as far as possible in this respect.
Which of the following options best explains the client’s legal position?
A-The client cannot exclude or limit liability if goods do not conform to the contract e.g. if they are defective or do not comply with their description.
Option A is correct -the Consumer Rights Act (CRA) would apply and the statutory implied terms in contracts for the sale of goods cannot be excluded.
