Exemption Clauses

Question 1

What is an exemption clause?

Answer 1

An exemption clause is a contractual term that purports to limit or exclude a liability that would otherwise be attached to one of the contracting parties

Question 2

What obligations can be affected by an exemption clause?

Answer 2

Contractual, tortious or both

Question 3

What three points must you consider when considering whether a party can rely on an exemption clause?

Answer 3

1) Incorporation - is the exemption clause validly part of the contract

2) Construction - does the allege clause as drafted cover the alleged breaches and resulting loss?

3) Statutory controls - what is the effect on the clause of Unfair Contract Terms Act 1977 and the Consumer Rights Act 2015?

Question 4

What is meant by contra proferentem and exemption clauses?

Answer 4

What is meant is that the general rule is that any doubt as to the meaning and scope of any exemption clause will be interpreted against the party seeking to rely on it

Question 5

How is contra proferentem in relation to exemption clauses effected where the parties are commercial parties?

Answer 5

The court is less likely to read a clause contra-proferentum in a contract between commercial parties of equal bargaining power

Question 6

If a party wishes to have an exemption clause which excludes negligence what language should they use?

Answer 6

Clause should clearly exclude negligence.

The word negligence should preferably be used.

If negligence is not used, words should be wide enough to cover negligence.

Question 7

Are third parties who are not a party to the contract protected by an exemption clause?

Answer 7

No - doctrine of privity of contract - no party outside the contract can benefit from its terms

Question 8

Are consumer contracts covered by the Unfair Contract Terms Act 1977?

Answer 8

No - they are specifically excluded

Question 9

What liability does UCTA cover?

Answer 9

Business liability

Question 10

What is business liability under UCTA?

Answer 10

Liability arising from things done in the course of business or from occupation of premises used for business purposes

Question 11

What is negligence under UCTA?

Answer 11

Any obligation, arising from the express or implied terms of a contract, to take reasonable care or exercisable skill in the performance of the contract

Any common law duty to take reasonable care or exercise reasonable skill

Question 12

Can liability for death or personal injury be exempted under UCTA?

Answer 12

No - any attempt to exclude or restrict liability here will be void

Question 13

Can liability for other loss resulting from negligence be exempted under UCTA?

Answer 13

It can be excluded so far as the term or notice is reasonable

Question 14

Can liability for breach of statutory implied terms about quality of goods be exempted under UCTA?

Answer 14

Yes if reasonable

Question 15

Can liability arising under contract (ie breach of an express term) be exempted under UCTA?

Answer 15

Yes if reasonable

Question 16

What is the test of reasonableness under UCTA?

Answer 16

Term must be ‘ 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 contact was made

Question 17

At what time is the reasonable test to be judged?

Answer 17

At the time the contract was made

Question 18

What guideline factors for reasonableness are in sch 2 of UCTA?

Answer 18

• strength of bargaining positions of the parties relative to each other
• whether the customer received an inducement to agree to the term or in accepting it had the opportunity of entering into a similar contract with other persons, but without having a similar term
• whether the customer knew or ought reasonably to have known of the existence and the extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealings between the parties)
• where the term excludes of restricts any relevant liability if some condition was not complied with, whether it was reasonable at the time of contract to expect that compliance with that condition would be practicable
• whether the goods were manufactured, processed or adapted to the special order of the customer

Question 19

What contracts are covered by the CRA 2015?

Answer 19

Business to consumer contracts

Question 20

Can a trader exempt liability for death or personal injury resulting from negligence under CRA 2015?

Answer 20

No - any attempt will be void

Question 21

What is negligence under CRA 2015?

Answer 21

• any obligation, arising from the express or implied terms of a contract, to take reasonable care or exercise reasonable skill in the performance of the contract
• any common law duty to take reasonable care or exercise reasonable skill
• common duty of care imposed by the Occupiers’ Liability Act 1957

Question 22

Can a trader exempt liability of statutory implied terms about goods under CRA 2015?

Answer 22

No. Any attempt to restrict:

• goods to be of satisfactory quality
• goods to be fit for purpose
• goods to be as described

will not be binding

Question 23

Can a trader exempt liability for breach of statutory implied terms about digital content under CRA?

Answer 23

No any attempt to restrict:

• content to be of satisfactory quality
• content to be fit for purpose
• content to be as described

will not be binding

Question 24

Can a trader exempt liability for breach of statutory implied terms about services?

Answer 24

An exclusion of service to be performed with reasonable care and skill will not be binding

A restriction/limitation of liability for reasonable care and skill will be binding if it does not prevent recovery of price paid by customer

Question 25

What other conditions of a consumer contract will not be binding if they are unfair?

Answer 25

Terms other than main subject matter of contract, nor the price of the goods, digital content or services provided the terms are transparent and prominent

Question 26

When is a term unfair?

Answer 26

A term is unfair if it is contrary to the requirement of good faith, it causes significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer

Question 27

What terms cannot be deemed unfair?

Answer 27

Terms specifying the main subject matter of the contract nor terms specifying the price of goods, digital content or services concerned provided they are transparent and prominent

Question 28

When is a term to be assessed as unfair?

Answer 28

At the time of contracting