Exemption clauses

Question 1

what are Two main types of exemption clauses?

Answer 1

exclusion clauses
limitation clauses

Question 2

whats an exclusion clause?

Answer 2

An exclusion clause is a term of the contract that excludes a party from liability for what would otherwise be a breach of contract.

Question 3

whats a limitation clause?

Answer 3

Limitation clause is a term that simply limits the liability of a party to a specified amount in the event that a term of the contract is breached

Question 4

whats the Purpose of exemption clauses?

Answer 4

An exclusion or limitation clause helps to:

Allocate risk between parties to contract

Limit the exposure of a party to risks

Question 5

exemption clauses are unfair and therefore…

Answer 5

there are legal controls on the use of exemption clauses

Question 6

must an exemption clause be incorporated?

Answer 6

For an exemption clause to be enforceable, it must be incorporated as a term.

If it is not incorporated, it will not be possible to rely on it because it is not part of contract

Question 9

what is the Purpose of exemption clauses?

Answer 9

An exclusion or limitation clause helps to:

Allocate risk between parties to contract

Limit the exposure of a party to risks

Question 10

exemption clauses can have unfair terms so…

Answer 10

there are legal controls on the use of exemption clauses

Question 10

For an exemption clause to be enforceable does it have to be an incorpotated term?

Answer 10

For an exemption clause to be enforceable, it must be incorporated as a term.

If it is not incorporated, it will not be possible to rely on it because it is not part of contract.

Question 11

exemption clauses enforceablity

Answer 11

For an exemption clause to be enforceable, it must:
Cover the loss which has occurred in the circumstances in which it has occurred.

Not be rendered unenforceable under legislation - Unfair Contact Terms Act 1977 and the Consumer Rights Act 2015.

Question 12

name 3 ways to incorporate exemption clauses

Answer 12

By Signature.
By Notice
By a consistent and frequent course of dealings

Question 13

Incorporation by Signature.

Answer 13

If a party signs a document, then s/he is bound by the terms in that document, EVEN if s/he did not read it.

If the terms are incorrectly explained, they can be overturned.

Question 14

L’Estrange v Graucob (1934)

Answer 14

Harriet L’Estrange bought a cigarette vending machine for her café.

She signed a contract without reading it.

The contract excluded various terms.

The machine jammed and couldn’t be fixed.
L’Estrange refused to pay any more instalments.

An exemption clause was used by Graucob.

Ruling: L’Estrange was bound by the signature.

Point of Law:
When a person signs a contract, they are generally bound by its terms, even if they did not read or understand them.

Question 15

Curtis v Chemical Cleaning & Dyeing Co (1951)

Answer 15

Curtis took her wedding dress to be cleaned and was asked to sign saying they wouldn’t be liable for any damage.

On questioning the contract, the assistant said it was for damage to beads and sequins.

The dress was returned badly stained.

Ruling: The cleaning company couldn’t rely on the clause because the scope of it had been misrepresented

Point of Law:
If an exemption clause is misrepresented, then it can no longer be relied upon.

Question 16

Incorporation by Notice.

Answer 16

A term will be incorporated into the contract if the party has Actual or Reasonable notice of them.

Usually, it is Reasonable notice that is the test.

An objective test is used to determine if notice is reasonable.

The degree of notice required varies with the circumstances of each case

Question 17

Thompson v LMS Railway (1930)

Answer 17

Mrs Thompson slipped on a ramp while getting off a train.

There were notices on the platform and on the ticket exempting the company from liability for personal injury and damage to property.

Mrs Thompson was illiterate and couldn’t read the notices.

She argued they should have brought the exclusions to her attention

Ruling: The clause was allowed. The company only has to take reasonable steps to bring the clause to the attention of the travellers in general. Not being able to read did not alter that position. (Nb, under UCTA 1977, this clause would not be sufficient as you cannot exempt injury and/or death

Point of Law:
Only reasonable notice needs to be given, not ACTUAL.

Question 18

Spurling v Bradshaw (1956)

Answer 18

J Spurling Ltd had a warehouse in East London.

Andrew Bradshaw had seven barrels of orange juice. Which he asked Spurling Ltd to store.

In the contract was the “London lighterage clause” which exempted warehousemen from liability due to their negligence.

When the barrels were collected, they were damaged.

Bradshaw refused to pay Spurling Ltd, so the company sued for the cost.

Ruling: Lord Denning – the content of the clause can be significant when determining whether the notice given was reasonable. If unusual or onerous a higher degree of notice is needed. See the ‘Red Hand Rule’

Point of Law:
The more onerous or unusual a clause is, the more notice is needed.

Question 19

Incorporation by Notice - The Red Hand Rule – Lord Denning

Answer 19

“ I quite agree that the more unreasonable a clause is, the greater the notice which must be given of it.

Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient.”

Question 20

Interfoto Picture Library v Stiletto Visual Programmes (1988)

Answer 20

Interfoto delivered 47 photographic transparencies to Stiletto in a jiffy bag.
Stiletto was planning to use them for a presentation, but in the event it did not.

They never opened the transparency bag or read Interfoto’s standard terms and conditions, which were inside the bag.

Condition 2 said there was a holding fee of £5 per transparency for each day over fourteen days.

After around a month, Interfoto sent a bill for £3,783.50.

Ruling: Reasonable steps had not been taken to bring the onerous nature of the terms to the other side’s attention, limiting the amount Stiletto were required to pay for the late return of the photographs

Point of Law:
Contractual terms, especially those that are onerous and unexpected, must be reasonable to be enforceable.

Question 21

Incorporation by Notice.

Answer 21

Exemption clauses need to be on a contractual document, not a receipt. (could also be used for timing)

Question 22

Chapelton v Barry Urban District Council (1940)

Answer 22

Chapelton went to a beach where there was a pile of deckchairs. A notice next to them said, “Barry Urban District Council. Cold Knap. Hire of chairs 2d. per session of 3 hours.”

Chapelton got two chairs from an attendant, paid the money and got two tickets. He put them in his pocket.

On the ticket was written, “Available for three hours. Time expires where indicated by cut-off and should be retained and shown on request. The council will not be liable for any accident or damage arising from the hire of the chair.”

When Mr Chapelton sat on the chair it gave way. He was injured.

Ruling: the ticket was merely a receipt of the contract, and the exclusion clause could not be incorporated as a term, because it was too late.

Point of Law:
Exemption clauses need to be on a contractual document, not a receipt. (could also be used for timing)

Question 23

Incorporation by Notice - Timing.

Answer 23

It must be given before, or at the time of the contract or it is too late.

Question 24

Olley v Marlborough Court Hotel (1949)

Answer 24

The claimant booked into a hotel.

In the hotel room on the back of the door a notice sought to exclude liability of the hotel proprietors for any lost, stolen or damaged property.

The claimant had her fur coat stolen.

Ruling: The contract was made at the reception desk where there was no mention of an exclusion clause.
Terms made after the contract is made are not effective.

Point of Law:
For a notice to be effective it must be given before or at the time the contract is made, otherwise it will be too late.

Question 25

Thornton v Shoe Lane Parking (1971)

Answer 25

As Thornton entered the car park, he took a ticket from the automatic barrier and parked his car. It said “this ticket is issued subject to the conditions of issue as displayed on the premises”.

On the car park pillars near the paying office there was a list, one excluding liability for “injury to the Customer… howsoever that loss, misdelivery, damage or injury shall be caused”.

Three hours later he had an accident before getting into his car.

Thornton sued.

Ruling: The contract was already concluded when the ticket came out of the machine, and so any condition on it could not be incorporated in the contract.

Point of Law:
For a notice to be effective it must be given before or at the time the contract is made, otherwise it will be too late.

Question 26

Incorporation by a consistent and frequent course of dealings

Answer 26

Where ordinarily the timing of the notice comes after the contract is already formed, it may still be valid if:

clause was incorporated through previous dealings

Question 27

Spurling v Bradshaw (1956) (remember this)

Answer 27

J Spurling Ltd had a warehouse in East London. Andrew Bradshaw had seven barrels of orange juice. Which he asked Spurling Ltd to store. Bradshaw used the warehouse regularly.

The invoice issued after the contract had been agreed included the exclusion clause.

Bradshaw claimed that the contract had been agreed prior to the invoice so the exclusion clause was invalid.

Ruling: Denning – the content of the clause can be significant when determining whether the notice given was reasonable. The previous dealings meant that it was valid.

Point of Law:
If you would have been aware of the term from a previous contract it can form part of the new contract.

Question 28

Hollier v Rambler Motors (1972)

Answer 28

Hollier took his car to a repair shop, Rambler Motors. He had been to this garage on three or four occasions in the past five years before. He had previously signed an invoice which had excluded liability for damage.

He did not sign the form on this occasion as he made the booking by phone.

Rambler Motors had negligently failed to inspect or maintain the wiring in the shop.

A fire broke out and burnt down the garage, with Hollier’s car in it.

Hollier sued Rambler.

Ruling: The Court of Appeal held that a previous course of dealing did not incorporate the term, because there was neither a regular nor consistent course of dealings.
The claimant cannot have been expected to remember the clause.

Point of Law:
There must be frequent and consistent dealings prior to the current contract for the clause to be valid.

Question 29

what are Legal controls on the use of exemption clauses – Special protection for consumers

Answer 29

Special protection for consumers has taken two forms:

Judicial control through the common law

Statutory control

Question 30

The contra proferentem rule

Answer 30

Where there is doubt about the meaning of the contract, the words will be construed against the person who is seeking to rely on them.

has to be very distinct

Question 31

Andrews v Singer (1934)

Answer 31

Andrews agreed to buy some ‘new Singer cars’ from the defendant.

The contract expressly stated that the cars would be new.

The contract contained a term which excluded ‘all conditions, warranties and liabilities implied by statute, common law or otherwise’.

One of the cars delivered was not new but had been used on the road.

The claimant sought to reject the car.

The defendant tried to rely on the clause.

Ruling: The court held that the “new Singer car” was not an implied term but rather an express one; the defendants had therefore breached the contract by not delivering a “new Singer car” and the exemption clause could not be relied upon.

Point of Law:
Any ambiguity in the effect of the clause would be interpreted against the party seeking to rely upon it.

Question 32

what are the difference in interpretations of limitation and exemption clauses?

Answer 32

The courts may be more liberal in their interpretation of Limitation Clauses (Ailsa Craig Fishing v Malvern Fishing [1983])

Question 33

Ailsa Craig Fishing v Malvern Fishing [1983]

Answer 33

The claimant kept their vessels in a harbour, which was guarded under an agreement requiring the defendant to protect the vessels in the harbour. Due to negligence on the part of the defendant, one of the claimant’s vessels was hit by another and subsequently sunk.

The contract included a clause which capped the potential liability of the defendant at £1000 per claim or £12 000 per annum, unless the damage being claimed for was caused by theft or by fire. This included negligence or breach of contract

Ruling: The clause was valid.
Lord Frasier: “In my opinion these principles (to do with strict liability) are not applicable in their full rigour when considering the effect of clauses merely limiting liability.

Point of Law:
Courts are less hostile to limitation clauses than they are to exclusion clauses, and therefore make less effort to interpret them in ways which strain the language of the clause in order to achieve a measure of justice.

Question 34

what happens if a clause is ambiguous (can have different interpretations) ?

Answer 34

the contra proferentem rule applies

Question 35

Photo Productions v Securicor (1980)

Answer 35

Photo Productions Ltd engaged Securicor to guard their premises at night. A night-watchman started a fire in a brazier at Photo Production’s factory to keep himself warm. The fire spread “accidentally” and the Photo Productions plant was totally destroyed by fire.

Securicor argued that a widely drafted exemption clause in the contract excluded liability

Ruling: Securicor’s exclusion clause was effective and exempt it from liability for damage. Lord Diplock held that the clause’s effectiveness was a question of construction of the contract, and that it did cover the damage

Point of Law:
Where the parties are negotiating at arm-length, and have set out who should bear the risks, the courts should be unwilling to interfere.

Question 36

The exemption clause doesn’t always have to be in a contractual document.

true or false

Answer 36

true

Question 37

If the exemption clause is free from ambiguity, it is valid.

true or false

Answer 37

true

Question 38

If you have not read the contract, the exemption clause is not valid.

true or false

Answer 38

false

Question 39

If someone uses your services, your exemption clause is valid regardless of when they have seen it.

true or false

Answer 39

false

Question 40

UCTA (unfair contract terms act) 1977 Under s.2(1),

Answer 40

clauses that attempt to exempt business liability for death or personal injury, are void

However, this doesn’t apply to personal property

Question 41

who does the unfair contract terms act apply to ?

Answer 41

UCTA now only applies to B2B Contracts, B2C contracts now handled by the Consumer Rights Act 2015

Question 42

UCTA Under s.1(3)

Answer 42

the Act ONLY applies to ‘business liability – things done ‘in the course of business’ or ‘from premises used for the purpose of business’.

Question 43

what are some tests of reasonableness UCTA 1997

Answer 43

Clauses that attempt to exclude or limit liability for any other damage caused by negligence (e.g. property damage) s.2(2)

Clauses attempting to exempt liability in consumer contracts which is not specifically covered in the Act (s.3)

Clauses in Contracts that attempt to exempt liability for Misrepresentation (s.8)
(covered in later lectures)

Question 44

can you exclude statutory implied terms?

Answer 44

Under UCTA no unless its a good claim

(iii) Clauses attempting to exempt liability in business contracts entered into on Standard Terms (s.3)

(iv) Clauses in business contracts that attempt to exempt the liability for a breach of the implied terms as to title, description, satisfactory quality, fitness for purpose and sale by sample (s.6 , s.7)

Question 45

what is another test of reasonableness

Answer 45

The burden of proving whether an exemption clause is reasonable is on the party seeking to rely on it.

The term must be fair and reasonable taking into account ALL the circumstances that were known or should have been known when the contract was made

eg if your at a club and theres a cloakroom and it says not liable of loss or damage it could be viable however if theres holes in the room where people can easily get in then it becomes unreasonable

Question 46

UCTA S.11(4)

Answer 46

states two additional factors which must be considered to determine if exemption clause is reasonable:

The resources available to the party seeking to limit the liability eg the exemption clause of the university to us must be more reasonable as they have better resources

The question of who is in the best position to insure against the risk of loss created by the breach

eg if you deliver a package and have expensive china in it royal mail have no idea of the value and they arent expected to know the exact value and you do therefore you insure

Question 47

George Mitchell v Finney Lock Seeds (1983

Answer 47

Finney agreed to supply Mitchell with 30 lb of Dutch winter cabbage seed for £201.60.
An invoice sent with the delivery was considered part of the contract and limited liability to replacing ‘any seeds or plants sold’ if defective (clause 1) and excluding all liability for loss or damage or consequential loss or damage from use of the seed (clause 2).
The crops failed, and £61,513 was claimed for loss of production.

Ruling: Finney would have found it easier to insure against the seeds working than Mitchell against crop failure.

Point of Law:
An exemption clause is more reasonable if the person relying on it is less able to insure against loss or damage.

Question 48

name three more tests of reasonableness

Answer 48

The bargaining strengths of the parties and whether the buyer could have used an alternative supply eg if its a monopoly the business has less bargaining strength

Whether the buyer was induced to enter the contract eg they had no choice

Whether the buyer knew or should have known of the term (perhaps from previous dealings or custom)

Question 48

name 2 more tests of reasonableness

Answer 48

Whether the clause only applies where the buyer fails to meet a condition eg not installing a printer properly the clause does not apply

Whether the goods were ‘manufactured adapted or processed’ to the special order of the buyer eg custom shoes have more chance of using the limitation clause as more lilely to go wrong

Question 49

Woodman v Photo Trade Processing Ltd (1981)

Answer 49

A photograph developing shop, Photo Trade Processing Ltd, lost some snaps from a wedding.

Its standard contract clause excluded liability for damages which exceeded the cost of the material itself. (They covered the cost of the film only, not the photos)

Ruling: held that the photo shop was liable to Woodman for the loss of the photographs, because other alternative sources of supply were not shown to be available nearby and the photo shop had not offered a service without the exclusion clause under the Unfair Contract Terms Act 1977 sections 2(2) or 3

Point of Law:
Reasonableness - The bargaining strengths of the parties and whether the buyer could have used an alternative supply.

Question 50

for tests of reasonabless is there any binding precedents?

Answer 50

NO
The application of the test will vary from case
to case.
Conclusions on one case should not be treated as binding precedents on others.

Question 51

George Mitchell v Finney Lock Seeds (1983)

Answer 51

Finney agreed to supply Mitchell with 30 lb of Dutch winter cabbage seed for £201.60.
An invoice sent with the delivery was considered part of the contract and limited liability to replacing ‘any seeds or plants sold’ if defective (clause 1) and excluding all liability for loss or damage or consequential loss or damage from use of the seed (clause 2).

The crops failed, and £61,513 was claimed for loss of production.

Ruling: held that the goods sold were not “seeds” at all as they didn’t work.

Question 52

what happens on appeals of tests of reasonableness

Answer 52

On appeal, the courts are cautious about upturning decisions from lower courts.

“The appellant court should treat the original decision with the utmost respect and refrain from interference with it unless satisfied that it proceeded on some erroneous principle or was plainly and obviously wrong” Lord Bridge

they trust lower courts on tests of reasonableness

Question 53

If there is a monopoly position for the supplier, they still cannot put any exemption clause in they want.

true or false

Answer 53

true

Question 54

The UCTA tests for reasonableness of all clauses.

true or false

Answer 54

false just the exemption clauses

Question 55

If you know exactly what is in your parcel being shipped, the exemption clause is more likely to be valid.

true or false

Answer 55

true if you know whats in your parcel you should be insuring

Question 56

If there is a limitation clause for a special service and an exemption clause for the standard, choosing the standard makes that clause more reasonable.

true or false

Answer 56

true you have the alternative supply