exemption clauses Flashcards
the parol evidence rule
the rule that where a written contract document purports to record all the terms of the parties agreement, no evidence can be adduced to vary / contradict it
parol evidence rule applied
henderson v aruthur
-> a tenant could not adduce evidence of an alleged prior agreement to accept IOU’s for rent when the deed of lease required rent to be paid in cash
exceptions to the rule
- the contract is partly in writing and partly oral
- the oral promise can be treated as giving a rise to a collateral contract
tensions underpinning rule + exceptions
- law is not very coherent here
What is the Heilbut case’s significance for the parol evidence rule and collateral contracts?
Parol Evidence Rule: Written contracts can’t usually be altered by external evidence
Collateral Contracts: Separate oral agreements alongside a main contract.
Rare and viewed skeptically by courts.
Must be proven with clear, strict evidence.
Key Quotes:
Viscount Haldane: Courts won’t assume collateral contracts without clear language.
Lord Moulton: Collateral contracts must be strictly proven and are rare, as modifying the main contract directly is more usual.
effect of entire agreement clauses
- will prevent collateral agreements arising out of oral pre-contractual assurances
-> however, they do not prevent adducing extrinsic evidence going to interpretation
-> neither does it prevent claims in misrepresentation unless the wording excludes this in clear terms
“no oral modification” clauses
- traditional view is that parties cannot give up normal power that everyone has to enter into an oral contract by agreeing that no amendment can be made to the written contract unless it is made in writing
advantages of NOM clauses
Certainty: Ensures all parties agree formally to changes, avoiding misunderstandings
Protection: Prevents one party from unilaterally claiming a change was agreed orally
Business Efficiency: Encourages professionalism and proper documentation in contractual relationships
MWB Business Exchange v Rock Advertising (2018):
The UK Supreme Court upheld the NOM clause, emphasizing its purpose to promote certainty and avoid informal variations that could lead to disputes.
However, the court noted that NOM clauses can still be overridden by express agreement or clear conduct, but this requires strong evidence.
exemption clause
an exemption clause is a contract term that relieves a party of some/all of their liability, in the event of their breach of contract, committing a tort or breaching some other duty
controversiality around exemption clauses
- they can defeat the parties expectations; if you pay money for an item you pay expect to be compensated if the product is not up to standard
- they can disincentivise taking care, “moral hazard”
- in extreme, can empty a party’s duties of all content
- unfair surprise, the existence of exemption clauses is often unlikely to be appreciated by consumers and small businesses
in defence of exemption clauses
- help define the parties duties to one another
- valuable way of allocating risk between the parties, often linked to insurance considerations
- exclusion and limitation-of-liability clauses are common in properly negotiated contracts between well advised commercial entities of equal bargaining power
- not all unfair terms are exemption clauses
common-law control of exemption clauses
- rules on incorporation of unsigned notices
- contra preferentem
- strict interpretation of exemption clauses
problems with common-law control mechanisms
- applied ‘one-size-fits-all’ manner; judge made law should be of universal application
- did not prevent determined parties from introducing and relying on unfair terms and making sure exemption clauses were drafted to meet the restrictive rules of interpretation developed in case law
- some of the rules were limited to targeting exemption clauses
contra preferentem
any ambiguity is to be resolved against the party who introduced the clause
limits to CP
- rarely decisive as to the meaning of any provisions of a commercial contract -> the words used in a commercial sense + should be enough to determine meaning
- identifying the proferens can be hard in commercial contracts because; often there are mutual exclusions in construction of contracts, such clauses often go through an intensive process of b-f-negotiations
What is the presumption for interpreting ambiguous exemption clauses?
If an exemption clause is unclear, it is interpreted narrowly (giving it less effect). This is because it’s unlikely parties would limit remedies for major contract breaches without clear wording (The Hut Group Ltd, 2016).
This applies even for mutual liability exemptions.
But it doesn’t allow giving a “strained” or unnatural meaning to the clause.
applying Canada steamship:
In EE Caledonia (1994), a clause requiring parties to indemnify each other against “any claim… or liability… arising by reason of death” of their employees was held not to cover negligence liability.
Reason: The clause could also apply to liability for breach of a no-fault statutory duty (e.g., strict liability).
Key Point: If an alternative basis for liability (other than negligence) is realistic, the clause will not exclude negligence.
This decision acknowledged that in contexts like oil fields with strict statutory regimes, non-negligence liability is a real and foreseeable concern (per Hobhouse J).
UCTA 1977
- national origin
- unfair terms in consumer contracts regulations
CRA 2015
The Consumer Rights Act
- a codification of EU Law
rationalising the legislation
prior to 2015, UCTA and UTCCR overlapped: the same term could be subject to review under both pieces of legislation applying different standards:
2015 REFROM ->
- repealed + replaced the UTCCR with CRA
- translated over the the CRA certain provisions of UCTA that were more favourable to consumer than UTCCR
- amended UCTA so that is no longer applies to consumer contracts
similarities of UCTA + CRA
- both invalidate certain terms outright
- both subject certain terms to review
- both apply to an open-ended class of contract
differences between UCTA and CRA
- UCTA only applies to business to business contracts; CRA to business to consumer
- UCTA applies only to exemption clauses and others that cut down parties duties; CRA makes any clause reviewable
- both have different origins
- CRA allows for pre-emptive enforcement
What does Section 2 of the UCTA say about liability for negligence?
Section 2 of UCTA:
A person cannot exclude liability for death or personal injury caused by negligence.
For other loss or damage, exclusion is allowed only if the clause passes the reasonableness test.
This ensures fairness and limits how much parties can exclude liability in negligence cases.
UCTA s6 + 7
- absolutely invalidate any term which exempts liability for implied terms as to title
- make exclusions/restrictions of liability for breach of other implied terms in sales/supplies of goods
UCTA s 13
Section 13(1) of UCTA ensures that parties cannot avoid liability by redefining exemptions as “duty-defining provisions.”
It states:
Sections 2, 6, and 7 also prevent excluding or restricting liability through terms or notices that exclude or restrict the relevant obligation or duty.
This stops parties from sidestepping UCTA’s rules by rewriting the scope of their responsibilities.
How does UCTA make liability harder to enforce?
Under UCTA, liability cannot be excluded or restricted by:
Restrictive or onerous conditions on enforcing liability.
Excluding or restricting rights/remedies related to the liability or penalizing someone for pursuing them.
Excluding or restricting rules of evidence or procedure.
Sections 2, 6, and 7 ensure that terms or notices attempting these restrictions are also invalid if they limit the relevant obligation or duty.
UCTA S11What is the “requirement of reasonableness” under UCTA, Section 11?
A term must be fair and reasonable to include, considering the circumstances that were (or should have been) known or contemplated by the parties when the contract was made.
Key Point:
Most UCTA provisions (e.g., s3(2)) do not outright invalidate terms but instead subject them to this test of reasonableness. (Exception: s2(1) prohibits exclusion of liability for personal injury or death outright.)
How is the “requirement of reasonableness” applied under UCTA?
Burden of Proof: The party relying on the term must prove it is reasonable (s11(5)).
Guidelines: Schedule 2 provides non-exhaustive criteria, but courts may consider other relevant factors.
Fact-Specific Analysis: Courts assess reasonableness based on the specific circumstances of each case (e.g., Bates v Post Office
How is the “requirement of reasonableness” applied under UCTA?
Burden of Proof: The party relying on the term must prove it is reasonable (s11(5)).
Guidelines: Schedule 2 provides non-exhaustive criteria, but courts may consider other relevant factors.
Fact-Specific Analysis: Courts assess reasonableness based on the specific circumstances of each case (e.g., Bates v Post Office).
What are the Schedule 2 factors for assessing reasonableness under UCTA?
Bargaining Power: Relative strength of the parties and availability of alternatives.
Inducement: Whether the customer was incentivized to agree or could have contracted elsewhere without the term.
Awareness: If the customer knew or should have known about the term (e.g., trade custom or prior dealings).
Practicability: If compliance with any conditions was reasonable at the time of the contract.
Customization: Whether the goods were specially made for the customer.
These factors guide courts but are non-exhaustive
