Exemption clauses Flashcards
Definition of exemption clauses
A contractual term that purports to limit or exclude a liability that would
otherwise attach to one of the contracting parties.
Three-stage approach to examine exemption clauses
1- incorporation
=> Part of contract? Incorporation of terms? Precedents?
2- construction
=> clause, as drafted, cover the alleged breaches and resulting loss?
3- statutory controls
=> consider UCTA 1977 and CRA 2015
What does the GR that exemption clauses will ve construed ‘Contra proferentem’ mean?
‘that if there is any doubt as to the meaning and scope of the exemption clause, the ambiguity will be resolved against the party (the ‘proferens’) seeking to rely upon it’.
Clear words must be used if they are to limit liability.
It should be noted that the courts apply the contra proferentem rule with less rigour where the clause in question merely limits (rather than excludes) liability.
A driver has taken out a car insurance policy. The insurer has drafted the wording of the policy, including a clause which excludes liability ‘for damage caused or arising whilst the car is conveying any load in excess of that for which it was made’.
Meaning and scope should be considered under contra proferentem.
What is not covered clearly will be contrued against the party relying on it.
- it would need the plainest possible words if it were desired to exclude the liability
LOAD – does it refer to passengers? Not clearly. The ambiguous clause was construed against the proferens. The claimant in this case was a consumer. Will be construed against the insurance company.
When is the court less likely to read a clause contra proferentem?
Contract between commercial parties of equal bargaining power.
Requirement for exemption clauses limiting liability for negligence
Clear words must be used if a party is seeking to exclude liability resulting from its own
negligence.
The requirement is most obviously met where the word ‘negligence’ itself is used and, in practice, most drafters will avoid ambiguity by using the word negligence.
The requirement may be satisfied if the words do not expressly refer to negligence but are
nevertheless wide enough to extend to negligence (eg ‘all liability howsoever caused’).
However, if general words are used their effectiveness may depend on the following distinction:
(a) Cases where the only basis for liability is negligence - effective
(b) Cases where the party will be liable irrespective of negligence - not effective
Can an exemption clause using general words be effective in cases where the only basis for liability is negligence?
YES
Can an exemption clause using general words be effective in cases where the party will be liable irrespective of negligence?
NO
Can an exemption clause using the ‘NEGLIGENCE’ word itself exclude liability?
YES
How to assess whether an exemption clause is valid in B2B contract?
UCTA poses reasonableness proviso - consider the circumstances which were or ought reasonably to have been known or in contemplation of the parties when the contract was made.
Is the exemption clause for negligent breach causing damage or loss valid under UCTA?
(eg. breach of the term implied by s13 SGSA)
Loss/damage
if reasonable
Is the exemption clause for negligent breach causing death or personal injury valid under UCTA?
NO
Is the exemption clause for breach of terms implied by ss 13-15 SGA valid?
Valid if reasonable
UCTA for determining validity of exemption clause is used for
- Business contracts B2B
- both parties are acting in the course of a business
- things done or to be done by a person in the course of a business (whether his own
business or another’s) - from the occupation of premises used for business purposes of the occupier; and
references to liability are to be read accordingly
Does UCTA apply where one parties is acting in the course of a business and the other party is not?
NO - CRA applies
Under UCTA, when is an exemption clause valid considering a breach of an express term?
Applies if a party dealing on other’s written standard terms of business.
It is valid if reasonable.
Does CRA or UCTA apply, if so which one, for an exemption clause where neither party is acting in the course of a business?
Neither regime applies.
Negligence for the purposes of UCTA is defined as;
- 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
Death or personal injury resulting from
negligence (eg through breach of a term
implied by s 13 SGSA) is
VOID
Loss (other than death or personal injury)
resulting from negligence (eg through breach
of a term implied by s13 SGSA)
Valid if reasonable
Exempting liability for breach of statutory implied terms about quality of goods is valid if
satisfies the requirement of reasonableness
Pursuant to s 3, where any party deals on its own written standard terms of business (s 3(1)), that party cannot rely on a contract term to exclude or limit its liability in the event it commits any breach of contract, except
it satisfies the reasonableness test.
Note that:
- if the term limiting liability is in a negotiated agreement: UCTA does not apply.
- if the term limiting liability is in a party’s ‘standard terms’ valid if rasonable
Validity for exemption clause
- if the term limiting liability is in a negotiated agreement: (…)
-f the term limiting liability is in a party’s ‘standard terms’: (…)
- UCTA does not apply
- valid if reasonable
What is the reasonableness test under UCTA
- 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 contract was made
When is the requirement of reasonableness judged?
Tat the time the contract was made
factors to consider reasonableness of an exemption clause under UCTA
1- strength of the bargaining positions of the parties relative to each other
2- customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons, but without having a
similar term
3- customer knew or ought reasonably to have known of the existence and the extent of the term
4- the term excludes or restricts any relevant liability if some condition was not complied
with, whether it was reasonable at the time of the contract to expect that compliance with
that condition would be practicable
5- goods were manufactured, processed or adapted to the special order of the customer.
What is the test for validity for exemption clause under CRA?
FAIRNESS
When is an exemption clause unfair under CRA 2015?
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.
Contract price - can exemption clause be valid under CRA?
No. Cannot be assessed for fairness.
Exemption clause under CRA for death or PI resulting from negligence is
NOT binding on consumer.
Under CRA is the exemption clause for implied terms ss 9-11 binding?
Section 9 – goods to be of satisfactory quality
Section 10 – goods to be fit for particular purpose
Section 11 – goods to be as described
NO
NOT BINDING ON THE CONSUMER
Exempting liability for breach of statutory implied terms about digital content under CRA, binding?
NO
NOT BINDING ON THE CONSUMER
Exempting liability for breach of statutory implied terms about services under CRA binding/valid?
Total exclusion - NOT binding
Restriction/limitation of liability - Binding if it does not prevent recovery of the price paid
