Exemption clauses

Question 1

Common law rules

Answer 1

The common law has developed two tests relating to exemption clauses, namely incorporation and construction.

Question 2

Construction

Answer 2

The question here is whether the clause was intended to exclude or otherwise limit liability for the particular breach and loss that has occurred. The process of construction may be quite straightforward.

Question 3

Statutory controls

Answer 3

The two main statutes that govern limitation and exclusion clauses are the Unfair Contract Terms Act (UCTA) 1977 and the CRA 2015.

Question 4

Unfair contract terms 1977

Answer 4

The aim of UCTA 1977 is to restrict the effectiveness of certain types of exemption clauses. Applying UCTA 1977 will give us one of three results (Figure 7.1):
(a) it prevents the defendant from excluding or restricting their liability by reference to the term (eg in relation to death/personal injury caused by negligence – UCTA 1977, s 2(1)) and the seller’s implied undertaking as to title (ownership) of goods sold or transferred (UCTA 1977, s 6(1)(a) and s 7(3A)); or
(b) it has no effect on the term, and so the defendant can rely on the term (eg a clause in a freely negotiated contract that exempts liability for breach of an express term – UCTA 1977, s 3); or
Exemption Clauses
(c) it subjects the term to a ‘requirement of reasonableness’. This means that the defendant can rely on the term only if it satisfies this requirement. If it does not, UCTA 1977 will prevent the defendant from excluding or restricting their liability by reference to it. Indeed, if UCTA 1977 does apply, then, more often than not, it subjects the exemption clause to the requirement of reasonableness.

Question 5

The reasonableness test

Answer 5

The reasonableness test applies to most exemption clauses in business-to-business contracts and in particular to clauses exempting liability for:
* loss or damage (other than death and personal injury) caused by negligence (including breach of the term implied by SGSA 1982, s 13) – UCTA 1977, s 2(2);
* breach of the statutory implied terms relating to goods – description, quality and fitness for purpose – UCTA 1977, ss 6 and 7 (s 6 applies to sale of goods contracts and s 7 applies to goods supplied under a work and materials contract); and
* breach of an express term contained in the standard written terms of the person seeking to exempt liability – UCTA 1977, s 3.

To satisfy the reasonableness test the clause must have a fair and reasonable one to be included in the contract.

Question 6

Consumer Rights Act 2015

Question 7

Exemption clauses and third parties