Exemption clauses

Question 1

If a party wants to exclude their liability in negligence, the most certain way to achieve this is by:

(a) 
Use broad words that are wide enough to include negligence.

(b) Using the word negligence or a close synonym for negligence.

Answer 1

(b) Using the word negligence or a close synonym for negligence.

Question 2

What is the meaning of the word ‘construction’ when considering whether a party can rely on an exemption clause?

(a) 
Construction means determining whether the exemption clause is part of the contract

(b) 
Construction means drafting the exemption clause to exclude or limit the party’s liability in the event of a breach

(c) 
Construction means modifying the liability of the party in breach of contract by excluding or limiting his liability

(d) Construction means interpreting the exemption clause to determine whether the clause as drafted covers the breach and loss that has occurred

Answer 2

(d) Construction means interpreting the exemption clause to determine whether the clause as drafted covers the breach and loss that has occurred

Question 3

In relation to exemption clauses and negligence, in what circumstances may the contra proferentum rule and the Canada Steamship rules be less relevant?

(a) 
When an exemption clause occurs in a consumer contract where the parties are not of equal bargaining power.

(b) 
When an exemption clause occurs in a commercial contract where the parties are not of equal bargaining power.

(c) 
When an exemption clause occurs in a standard form contract where the parties are not of equal bargaining power.

(d) 
When an exemption clause occurs in a commercial contract between parties of equal bargaining power

Answer 3

(d) 
When an exemption clause occurs in a commercial contract between parties of equal bargaining power
Following Persimmon Homes Ltd v Ove Arup & Partners Ltd [2017] when an exemption clause occurs in a commercial contract between parties of equal bargaining power, the contra proferentem rule and the Canada Steamship test might well be less useful than considering the normal meaning of the words construed in the light of the other provisions of the contract.

Question 4

Which exemption clause will be void as a result of the Unfair Contract Terms Act 1977?

(a) 
A clause excluding liability for breach of the statutory implied term about quality of goods

(b) 
A clause excluding liability for damage to personal property

(c) 
A clause excluding liability for death or personal injury resulting from negligence.

(d) 
A clause excluding liability for breach of contract

Answer 4

(c) 
A clause excluding liability for death or personal injury resulting from negligence.


Question 5

What is the purpose and scope of the Unfair Contract Terms Act 1977?


(a) The Act regulates exemption clauses that seek to exclude or restrict liability where one party is acting in the course of a business and the other party is not

(b) 
The Act regulates contracts between businesses and consumers ensuring that contractual terms are fair and reasonable

(c) 
The Act regulates exemption clauses that seek to exclude or restrict liability where both parties are acting in the course of a business

(d) 
The Act regulates exemption clauses that seek to exclude or restrict liability where neither party is acting in the course of a business

Answer 5

(c) 
The Act regulates exemption clauses that seek to exclude or restrict liability where both parties are acting in the course of a business


Question 6

According to the Unfair Contract Terms Act 1977, when is the requirement of reasonableness judged?

(a) 
At the time the contract was made
(b) 
At the time the parties seek legal advice

(c) 
At the time of the relevant breach

(d) 
At the time the term is considered by the Court

Answer 6

(a) 
At the time the contract was made

The reasonableness test is set out in s.11 of the Act and guidelines to be used in applying the test are found in schedule 2 of the Act.
S.11 states that the reasonableness of a contractual term is judged taking into account the circumstances which were or ought reasonably to have been known or in the contemplation of the parties when the contract was made.

Question 7

Which of the following contracts is not regulated by the Consumer Rights Act 2015?

(a) 
A contract for the supply of digital content to a consumer

(b) 
A contract for the supply of goods to a consumer

(c) 
A contract of employment
(d) 
A contract for the supply of a service to a consumer

Answer 7

(c) 
A contract of employment

S. 48(2) of the 2015 Act states that contracts of employment are not covered by the Act.
In contrast, the Act covers contracts for the supply of goods to consumers, contracts for the supply of digital content to consumers and contracts for the supply of services to consumers


Question 8

The Consumer Rights Act 2015 regulates unfair terms in consumer contracts. How is unfairness assessed?

(a) 
A term is unfair if it does not expressly fix the time for the service to be performed

(b) 
A term is unfair if it is expressed in plain and intelligible language

(c) 
A term is unfair if it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the trader

(d) 
A term is unfair if it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer

Answer 8

(d) 
A term is unfair if it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer

S.62(4) of the Act states that ‘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.’

Question 9

Which of the following is not correct regarding the Consumer Rights Act 2015?

(a) 
The Act makes unenforceable any term which restricts liability for breach of the requirement that services are performed with reasonable care and skill
(b) 
The Act is concerned with contracts between businesses and consumers

(c) 
A customer is not bound by a term that attempts to exclude or restrict the trader’s liability for breach of the requirement that goods are fit for their particular purpose

(d) 
The Act regulates unfair terms generally


Answer 9

(a) 
The Act makes unenforceable any term which restricts liability for breach of the requirement that services are performed with reasonable care and skill

This is the correct answer because this proposition is not correct. S.57(1) provides that a customer is not bound by a term in a contract to supply services to the extent that it would totally exclude the trader’s liability to perform the service with reasonable care and skill, but a restriction of liability (to a specific sum) will not be binding to the extent that it would prevent the consumer from recovering the price paid, but otherwise could be binding.

Question 10

What is the definition of an exemption clause?

Answer 10

Exemption clause = contractual term that purports to exclude liability that would otherwise attach to one of contracting parties - obligations affected by exemption clause may be contractual, tortious or both

Where commercial parties are negotiating contract more common for party to limit its liability rather than exclude it - limitation of liability clause will typically cap liability in relation to particular events at particular sum

Question 11

What are the three elements you consider to rely on exemption?

Answer 11

1. Incorporation: is exemption clause part of contract - depends on ordinary principles governing incorporation of terms - ‘reasonable notice’
2. Construction: does this clause, as drafted, cover alleged breach(es) and resulting loss?
3. Statutory controls: what is effect of clause on UCTA 1977 and CRA 2015?

Question 12

What is the definition of construction?

Answer 12

Construction = interpreting exemption clause to determine whether clause as drafted covers breach and loss that has occurred

Exemption clauses can be drafted in variety of ways - generally have 2 or more of following elements:
1. Statement of whether liability is entirely excluded or only limited to stated amount
2. Statement of which types of claim/duties exemption relates to
3. Statement of which types of loss exemption relates to

Question 13

What does the contra proferentem rule state?

Answer 13

General rule: exemption clauses will be construed contra proferentem

Means that if there’s any doubt as to meaning and scope of exemption clause, ambiguity will be resolved against party seeking to rely upon it

Clear words must be used if they are to excuse one party from liability

Note: courts apply contra proferentem with less rigour where clause in question merely limits (rather than excludes) liability

Court is less likely to read clause contra proferentem where contract is between commercial parties with equal bargaining power

Question 14

How can exemption clause be used for negligence of own party and where should distinction be drawn?

Answer 14

Clear words must be used if party seeking to exclude liability resulting from its own negligence - requirement most obviously met when word negligence itself is used and most drafters will avoid ambiguity by using word negligence

Requirement may be satisfied if words do not expressly refer to negligence but are nevertheless wide enough to extend to negligence

However, if general words are used their effectiveness will depend on distinction between:
1. Cases where only basis for liability is negligence: effective to cover negligence
Cases where party will be liable irrespective of negligence: not effective to cover negligence

Question 15

What happens where third parties are involved in exemption clauses?

Answer 15

Doctrine of privity of contract: party outside contract cannot benefit from terms, nor can party have obligation imposed upon it by contract - applies to exemption clause in just same way that it would to any other kind of clause

Effect of this rule has been reduced by CRTPA 1999

Question 16

When should you apply UCTA and when should you apply CRA?

Answer 16

Combined effect of these two considerations is that:
Where both parties are acting in course of business, UCTA applies

Where one party is acting in course of business and other party is not, CRA applies

Where neither party is acting in course of business neither statutory regime applies

Question 17

Can you exempt liability for death or personal injury resulting from negligence under UCTA?

Answer 17

s. 2(1) UCTA: A person cannot by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict his liability for death or personal injury resulting from negligence

Any attempt to exclude or restrict liability for death or personal injury resulting from negligence will be void

Question 18

Can you exempt liability for other loss resulting from negligence under UCTA?

Answer 18

In relation to other loss or damage, s. 2(2): a person cannot so exclude or restrict his liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness

Question 19

Can you exempt liability for breach of statutory implied terms about quality of goods under UCTA?

Answer 19

s. 6(1A): liability for breach of section 13 - 15 of the Sale of Goods Act 1979 (seller’s implied undertakings as to conformity of goods with description or sample, quality or fitness for a particular purpose): cannot be excluded or restricted by reference to a contract term except in so far as the term satisfies the requirement of reasonableness

Question 20

Can you exempt liability arising in contract under UCTA?

Answer 20

s. 3: where any party deals on its own written standard terms of business, that party cannot rely on contract term to exclude or limit its liability in event it commits any breach of contract, except so far as term passes reasonableness test

Party cannot reference any contract claim to be entitled to
(a) Render contractual performance substantially different from that which was reasonably expected or
(b) Claim to be entitled in respect of whole or any part of contractual obligation, to render no performance at all
except insofar as contract term satisfies requirement of reasonableness

Term limiting liability is in negotiated agreement: UCTA does not apply

Term limiting liability is in party’s standard terms: valid if reasonable

Question 21

What is the reasonableness test under UCTA? N

Answer 21

Term shall have been fair and reasonable one to be included having regard to circumstances which were or ought reasonably to have been, known to or in contemplation of parties when contract made

Reasonableness judged at time contract made

Guidance
1. Strength of bargaining positions of parties relative to each other, taking into account (among other things) alternative means by which customer’s requirements could have been met
2. Whether customer received inducement to agree to term, or in accepting it had opportunity of entering into similar contract with other persons, but without having similar term;
3. Whether the customer knew or ought reasonably to have known of existence and extent of term (having regard, among other things, to any custom of trade and any previous course of dealing between the parties);
4. Where term excludes or restricts any relevant liability if some condition was not complied with, whether it was reasonable at time of contract to expect that compliance with that condition would be practicable;
5. Whether goods were manufactured, processed or adapted to special order of customer.

Question 22

Can you exempt liability for death or personal injury resulting from negligence under CRA?

Answer 22

s. 65(1): A trader cannot by a term of a consumer contract or by a consumer notice exclude or restrict liability for death or personal injury resulting from negligence

Any attempt to exclude or restrict liability for death or personal injury resulting from negligence will not be binding on consumer

Negligence includes breach of:
1. Any obligation, arising from express or implied terms of contract, to take reasonable care or exercise reasonable skill in performance of contract
2. Any common law duty to take reasonable care or exercise reasonable skill
3. Common law duty imposed by OLA 1957
Duties of care imposed by contract also caught

Question 23

Can you exempt liability for breach of statutory implied terms about goods under UCTA?

Answer 23

s. 31 CRA: provides that any attempt to exclude or restrict liability for any of following terms implied by CRA will not be binding on consumer

includes:
s. 9: goods to be of satisfactory quality
s. 10: goods to be fit for particular purpose
s. 11: goods to be as described

Question 24

Can you exempt liability for breach of statutory implied terms about digital content under UCTA?

Answer 24

s. 47: any attempt to exclude or restrict liability for following terms implied by CRA will not be binding on consumer

includes:
s. 34: digital contract to be of satisfactory quality
s. 35: digital content to be fit for particular purpose
s. 36: digital content to be was described

Question 25

Can you exempt liability for breach of implied terms about services under CRA?

Answer 25

s. 57: any attempt to entirely exclude following term implied by CRA will not be binding on consumer

includes:
(a) s. 49: service to be performed within reasonable care and skill

Any attempt to restrict/limit liability under s. 49 will not be binding to extent that it would prevent consumer from receiving price paid - so effectively, liability cannot be limited to less than price paid

SO:
Exclusions - not binding (s. 57)

Restrictions/limitations - no binding if prevent recovery of price paid

Question 26

How does CRA regulate terms other than exemption clauses?

Answer 26

CRA provides that any term in consumer contract is not binding on consumer if it is unfair - however, terms specifying main subject matter of contract cannot be assessed for fairness, nor can court assess fairness of price for goods, digital content or services concerned provided that terms are transparent of prominent

Term is unfair if, contrary to requirement of good faith, it causes significant imbalance in parties’ rights and obligations under contract to detriment of consumer - judged at time contract is entered into

Schedule 2 contains list of terms which may be regarded as unfair - not intended to be complete list

Question 27

What are the anti-avoidance provisions under CRA?

Answer 27

Restricts parties’ contractual freedom - parties might try to get around limitations in number of ways, but CRA has most such avenues covered eg:
1. Party might decide that rather than trying to limit or exclude certain claims in Contract A it will enter into separate Contract B by which other party will agree not to pursue any such claims in relation to Contract A - such use of parallel or secondary contracts to attempt to avoid mechanisms in CRA generally prohibited
2. Party might decide that rather than trying to limit or exclude liability in way that CRA would interfere with, it will make liability or its enforcement subject to certain onerous conditions or or limit the rights / remedies / evidence / court procedures available in relation such a liability - such mechanisms also generally prohibited