Exemption Clauses Flashcards
What are the 3 hurdles that must be cleared before an exemption clause in a contract can be relied upon?
To rely on an exemption clause, D must clear three hurdles:
1) Must be incorporated into the contract
- By signature, reasonable notice or previous consistent course of dealing
2) Its construction
- Is it purporting to exclude a particular breach and the damage it caused?
3) Statutory control
- UCTA for trade
- Consumer Rights Act for consumers
Explain the 1st hurdle of incorporation
Exemption clause must be incorporated
1) Best way is via signature
2) Incorporation via reasonable notice before or at time of contract
What is reasonable notice depends on:
- Type of document
- Legibility
- Onerous term – more must be done than normal to bring it to the other party’s attention
3) Incorporation via previous consistent course of dealing
Explain the 2nd hurdle of construction
As a matter of construction, is the clause purporting to exclude liability for the particular breach and loss caused?
- A clause excluding C’s right to treat contract as terminated will not prevent C claiming breach as an example
Contra proferentum rule – exemption clauses are construed against party seeking to rely on them
- This occurs in instances of ambiguity
Give an overview of the 3rd hurdle of statutory control
Unfair Contract Terms Act (UCTA)
- Applies to business-to-business contracts
Consumer Rights Act (CRA)
- Applies to business to consumer contracts
- Non-excludable rights - Cannot exclude rights for goods to be of satisfactory quality, fit for particular purpose and as described or the term about carrying out a job with reasonable care and skill
- A supplier cannot exclude liability for breach of the key terms implied into contracts for the sale and supply of goods and services
What are the 3 potential situations for how the UCTA will take effect in relation to an exemption clause?
1) UCTA will not impede/take effect at all in some situations
- Clause in a freely negotiated contract which excludes liability for breach of an express term
- Parties can decide this if they wish
2) Exclusion clause is automatically void – only one instance of this
- Cannot exclude negligence liability causing death/PI
3) In every other case, the exemption clause will have to satisfy the reasonableness test
What is the reasonableness test under the UCTA for exemption clauses?
Possible to exclude the following, where reasonable to do so
- S2 – exempting liability for negligence causing loss/damage
- S3 – clauses exempting liability for breach of an express term in a written standard form contract - (Parties haven’t negotiated the contract like in the ‘no effect’ example above)
- S6 and S7 – in business-to-business contract for supply of goods, it is possible to exempt liability for breach of the statutory implied terms relating to goods - (Description, Quality, Fitness for purpose)
To assess reasonableness, consider if it was reasonable to incorporate the clause at the time of the contract
- Onus on the party claiming the clause is reasonable, to prove the exemption clause is reasonable
The Schedule 2 guidelines provide some guidance in determing whether an exemption clause is reasonable or not.
What are some of the important considerations?
Relative bargaining positions of the parties
- If a big discrepancy, exclusion clause is probably unreasonable
- Court won’t interfere if bargaining power was equal and they had legal advice
Did the innocent party receive an inducement to agree to the exemption clause?
Extent to which the customer knew or ought reasonably to have known of the clause
- If hidden away, less likely to be reasonable
Where the exemption clause will apply if a condition is not complied with, whether it was reasonable to expect compliance with the condition
- If clause excludes liability for defective goods unless defects are reported in 7 days, is it reasonable to expect compliance with this if the goods might not have a use in that time
Bespoke goods
- More reasonable to exclude liability
For clauses seeking to exclude negligence liability, consider the difficulty of the task at hand
Consider which party is in the better position to insure too
Can exemption clauses protect 3rd parties to a contract?
Exemption clauses generally cannot protect third parties as they aren’t a party to the contract
Exception if a third party is named or identified as a member of a class entitled to benefit, within the exemption clause itself
- Neither the company nor its employees will be liable for X as an example
