Exemption Clauses

Question 1

what does the 1st part cover?

Answer 1

incorporation & construction

Question 2

define exemption clause?

Answer 2

generic term for all types of clauses which exempt or limit any sort of liability or remedies-

Question 3

what does an exemption clause do?

Answer 3

An exemption clause therefore operates as a DEFENCE to the liability

Question 4

what are 2 sub categories of exemption clauses?

Answer 4

exclusion clause

limitation clause

Question 5

what is an exclusion clause?

Answer 5

If the clause to totally exclude liability or remedies which would normally be applicable

Question 6

what is a limitation clause?

Answer 6

If the clause purports to limit liability or remedies which would normally apply- e.g to limit the recovery of damages to a set figure e.g value of a suitcase if lost

Question 7

what does an exam q in exemption clause assess?

Answer 7

whether an exemption clause can be relied upon

Question 8

what is the 1st step in an exam q for exemption clauses?

Answer 8

the first step is to identify that liability has in fact arisen – and the type(s) of liability: in breach of contract and/or in negligence.

Question 9

Can this particular exemption clause be relied upon by this party in these circumstances?

Answer 9

The party seeking to rely on the exemption clause must establish all 3 of the following requirements

Question 10

what are the 3 requirements?

Answer 10

1. That the exemption clause has been INCORPORATED as a term of the contract;
2. That, on its natural and ordinary meaning [no strained construction], the exemption clause covers what has happened [CONSTRUCTION];
3. That the clause is not rendered unenforceable by either
   THE UNFAIR CONTRACT TERMS ACT 1977 [UCTA 1977] or
   THE CONSUMER RIGHTS ACR 2015 [CRA 2015], Part 2, as applicable.

Question 11

how can incorporation be achieved?

Answer 11

Incorporation can be achieved:

(a) By Signature;
(b) By Reasonable Notice
(c) By Consistent Course of Dealing

Question 12

how can incorporation be achieved by signature?

Answer 12

if the exemption clause is in a written doc & signed by the other party = incorporation and it is not necessary to consider the second method

Question 13

top case for signature?

Answer 13

L’Estrange v Graucob Ltd -if a person signs a written doc containing contractual terms then he/she bound by terms even if not read them- d could rely on exemption clause even though p had not read and didnt know what doc said

Question 14

exceptions for signature?

Answer 14

1.Misrepresentation
Curtis v Chemical Cleaning & Dyeing Co & must be actual
Peekay Intermark Ltd v Australia & New Zealand Banking Group Ltd-no actionable misrepresentation so bound by signature – and risk disclosure statement.

2.Overriding oral promise
J. Evans & Son (Portsmouth) v Andrea Merzario Ltd relying on Mendelssohn v Normand Ltd below).

3.Non-contractual document
The document being signed must be a contractual document = contain contractual conditions.
Grogan v Robin Meredith Plant Hire - time sheet not

Question 15

How to achieve by reasonable notice?

Answer 15

Where the exemption clause is contained in an unsigned document (e.g. a ticket) or notice or is referred to in such a doc

Question 16

what are the req for reasonable notice?

Answer 16

1. Be contained in a contractual document (Chapelton v Barry U.D.C (not a receipt- mere voucher)
2. Reasonable steps must have been taken to bring the existence of the clause to the other party’s attention, although this is easily achieved since:

(a) it is regarded as common knowledge that the writing on certain documents contains terms and conditions- Parker v South Eastern Railway
(b) clauses can be incorporated by reference - o brien v mgn
(c) the clause only needs to be brought to the attention of people in general (Thompson v lms Railway

3.Notice must have been given IN TIME, i.e. before or at the time of contracting (Olley v Marlborough Court Ltd, Thornton v Shoe Lane Parking Ltd

Question 17

how do you look for a contractual doc?

Answer 17

1st if called receipt not conclusive
2nd time need offer and acceptance (time) - problem ticket could come much later e.g receipt to prove you paid not part of contractual process

Question 18

how was offer and acceptance analysed?

Answer 18

ticket case-Fiction - analysed in the light of the result in Parker v S.E. Railway
Offer - issue of ticket
Acceptance occurs when customer takes the ticket and retains it without objection

t4 incorp in time and ticket terms part of contract

what about automatic machines?-Contract at that point and any terms on tickets or items dispensed are too late.

Question 19

what is the higher standard of incorp?

Answer 19

for onerous or unusual clauses

Question 20

cases for higher standard of incorp?

Answer 20

Thornton v Shoe Lane Parking - red ink or red hand to specifically bring to other’s attention
The clause was purporting to absolve D from liability in negligence for personal injury - unusual clause

if unusual or oreneous will apply high standerd of incorp

used in Interfoto v Stiletto – needs to be fairly and reasonably brought to the other’s attention

Question 21

Is it the type of clause which must be onerous or unusual or the particular clause?

Answer 21

• AEG (UK) Ltd v Logic Resource Ltd
• Ocean Chemical Transport Inc v Exnor Craggs Ltd - the particular clause, rather than the type of clause, must be onerous or unusual.
• O’Brien v MGN Ltd
• Shepherd Homes Ltd v Enica Remediation Ltd
• Kaye v Nu Skin UK

Question 22

what is the 3rd to achieve incorp?

Answer 22

Consistent Course of Dealing and Common Understanding of parties

Question 23

what is Consistent Course of Dealing?

Answer 23

It is easier to find the necessary consistency of previous dealings between commercial parties:

• Kendall & Sons v Lillico & Sons Ltd
• Petrotrade Inc v Texaco Ltd over the previous 13 months 5 similar transactions (commercial context)

Compare consumer contracts: Hollier v Rambler Motors difficult against consumer

Question 24

Incorporation based on common understanding of the parties?

Answer 24

have to show both parties know trade association terms bc both in same trade and aware terms exist

• British Crane Hire Corporation v Ipswich Plant Hire Ltd
• Scheps v Fine Art Logistic Ltd -No copy supplied and not clear that both parties aware of the terms

Question 25

what is construction?

Answer 25

On its natural and ordinary meaning the clause must be worded so that it covers what has happened, i.e. so that it covers the liability that has arisen in the circumstances in which that liability has arisen.

Question 26

what is the 1st of construction issues?

Answer 26

Contra proferentem : Any ambiguity is resolved AGAINST the party seeking to rely upon the clause
Houghton v Trafalgar Insurance Co. Ltd

S. 69 CRA 2015: The contra proferentem rule is expressly incorporated in relation to consumer contracts in the Consumer Rights Act (CRA) 2015, s. 69:
‘If there is doubt about the meaning of a written term, the interpretation which is most favourable to the consumer shall prevail’.

Question 27

what is the 2nd of construction issues?

Answer 27

If an exemption clause is INCONSISTENT with another term of the contract or with an oral undertaking given before or at the time of contracting, the exemption clause will be overridden.-Mendelssohn v Normand Ltd

Question 28

what is the 3rd issue of construction?

Answer 28

Does the clause exclude or limit negligence liability?

-Exclusion clauses - A clause will exclude liability for negligence only where
EITHER

(a) The clause EXPRESSLY refers to the fact that it excludes negligence liability, i.e. uses the word negligence or a synonym of negligence [Monarch Airlines Ltd v London Luton Airport Ltd OR
(b) Negligence liability is the only liability arising on the facts [Alderslade v Hendon Laundry Ltd
C)Excluding liability in Negligence – Canada Steamship-BUT If the words used are wide enough to cover negligence and there is another liability (other than negligence alone) that has arisen on the facts (e.g. strict contractual), the clause will be construed so that it only covers that other liability – and not the negligence
White v John Warwick – hire of tricycle – but defective saddle
Strict contractual liability as tricycle not fit for purpose; AND
Negligence – breach of duty of care

another liab other than neg then clause will be construed so that it only covers strict contractual laibility and not neg

-Limitation clauses
The limitation clause will cover negligence liability if the clause is “clear and unambiguous”
*Ailsa Craig Fishing Co. Ltd v Malvern Fishing Co. Ltd
Clauses that limit liability to a set amount rather than excluding it altogether, are generally construed more favourably than total exclusion clauses.

Question 29

Can the exemption clause still be relied upon where the breach that occurs is a fundamental breach?

Answer 29

an exemption clause could not operate to exempt from liability for fundamental breach. This was because it was considered that a fundamental breach terminated the contract and all its terms, including any exemption clauses. However

Question 30

What is the hw of fundamental breach?

Answer 30

the House of Lords in Suisse Atlantique -held obiter that there was no such rule. This position was subsequently confirmed by the House of Lords in
***Photo Production Ltd v Securicor Transport Ltd

Question 31

questions to fundamental breach?

Answer 31

*Nowadays all exemption clauses are subject to the same construction test, irrespective of the breach which has occurred, namely

Is the clause wide enough on its natural and ordinary meaning to cover what has happened?

If the breach is fundamental, the only significance is that clear words will be required for the clause to cover it.
* *George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd

Question 32

what is the 3rd to establish exemption clause?

Answer 32

That the clause is not rendered unenforceable by either - ucta & cra

Question 33

what if a breach is fundamental?

Answer 33

If breach is fundamental (affecting purpose & substance of the contract) then (logically) VERY clear words will be required for the clause to cover it.
Exemption clauses are often drafted widely, therefore, legislation will need to cover the scope of reliance.

Question 34

negligence liability v contractual?

Answer 34

NEGLIGENCE liability ONLY
If there is only negligent liability on the facts, clause must be construed as covering that negligence liability. Alderslade v Hendon Laundry (1945)- loss of handkerchiefs to be laundered- breach only of duty to exercise reasonable care.

NEGLIGENCE AND STRICT liability
Exemption clause will cover BOTH if negligence and strict liability on the facts ONLY IF the clause expressly purports to cover the negligence. Monarch Airlines Ltd v London Luton Airport Ltd (1997) – ‘neglect or default’ – amounted to an express reference to negligence. Therefore clause covered negligence liability in addition to strict liability.

CONTRACTUAL liability ONLY
If no express language of negligence, clause construed so that it covers strict contractual liability. White v John Warwick & Co Ltd (1953): both strict and contractual liability and negligence involved hiring a tricycle with defective saddle. CA- exclusion clause had to be construed as covering only strict contractual liability.

Question 35

what does ucta apply to?

Answer 35

UCTA now only applies to B2B contracts. One business contracting with another.

UCTA- renders clauses either totally unenforceable or only enforceable if reasonable (s.11).

Question 36

what does cra apply to?

Answer 36

CRA- applies to contracts between trader and consumer (B2C contracts).

CRA- very wide application. Regulates ‘unfair terms’.
Consumer can avoid unfair exemption clauses.

Question 37

ucta structure?

Answer 37

Does the Act apply?

Which section of Act applies to liability to be excluded? (negligence/strict contractual)

Assessing reasonableness.

Question 38

Does the Act apply?

Answer 38

UCTA covers:
Clause tries to exclude liability unless a condition complied with e.g. reporting defect within timescale.
Clause excludes/limits rights/remedies
Clause restricts/limits rules of evidence/procedure
Clause limits/restricts obligations/duties

Question 39

which section for neg liability?

Answer 39

Section 2 UCTA (negligence) must be applied where negligence a liability on the facts.
Section 2(1)- death/personal injury from negligence- cannot be excluded/limited
Section 2(2)- other loss/damage (property/economic loss). Can only be excluded/limited to the extent clause is reasonable.

Question 40

section for strict lia?

Answer 40

Q 1.Is the contract for the sale of goods/work and materials? AND

Q2 Is the breach pursuant to S.13, 14, 15 SGA 1979?

YES- Sale of goods S.6 UCTA/work & materials S.7
NO- other strict contractual liability s.3 UCTA

Question 41

what is s.6 & 7?

Answer 41

S.6 (sale of goods contracts) or S.7 (work and materials contracts) address: implied terms as to conformity of description, satisfactory quality, fitness for purpose, correspondence with sample

Can be excluded/limited BUT only if the clause can be shown to be reasonable.

Question 42

s.3 ucta?

Answer 42

S.3 UCTA applies if there is breach of some other term of the contract (i.e. other than one of the implied terms as to the goods in the sales and supply legislation)

S.3 will apply where one business is dealing on the other’s written standards of business.

If S.3 applies, it can be applied to:
clauses allowing for substantially different contractual performance
clauses allowing the party in breach to tender no performance all.

If S.3 applies the clause can be used to exclude/limit strict contractual liability BUT ONLY IF the clause is shown to be REASONABLE (s.11).

Question 43

reasonableness s.11 ucta?

Answer 43

REASONABLE
Clause commercial contract- equal bargaining
Standard operating in that industry
Risk excluded could be covered by insurance
Breaching party more limited resources/more likely reasonable
Inducement to agree exemption clause
Alternative contract without exemption
Goods subject to exemption, manufactured specially

UNREASONABLE
Imbalance parties’ bargaining position

Party’s negligence tip reasonableness of clause against negligent party

Insurance cover accessible by party in breach of exemption

Clause ignored in practice- evidence of unreasonableness

Question 44

cra structure?

Answer 44

How does Act regulate?

Is the term unfair?

Guidance on judging ‘unfair’

Good faith and significant imbalance

Consequence if term unfair?

Question 45

hows does cra regulate?

Answer 45

S.62 CRA requires terms/notices in consumer contracts to be fair BUT NOT ALL terms can be assessed for fairness.
Fairness cannot extend to terms which:
Specify the main subject matter of the contract OR
Relate to the price payable so long as terms are transparent and prominent.

Transparency- plain/intelligible language. Written terms legible.
Prominence-brought to the attention of the average consumer.

This exclusion from fairness existed under the previous legislation and caused difficulties distinguishing between ‘core’ and ‘ancillary’ terms. This distinction under the new legislation is likely to persist.

Question 46

what is term unfair?

Answer 46

Term/notice regarded as unfair, if contrary to the requirement of good faith, it causes significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer (s.62(4)).

Question 47

guidance on unfairness?

Answer 47

S.62(5) contains some guidance on how the unfairness of a contractual term may be assessed.

Consider:
The nature of the subject matter of the contract, AND
All the circumstances when the term was agreed/all other terms of the contract or any contract on which it depends.

Part 1 of Schedule 2 contains ‘indicative and non exhaustive list of terms which MAY be regarded as unfair’.

S.65 exclusion/restriction of liability in negligence for death/personal injury not permitted.

Question 48

Good faith and significant imbalance?

Answer 48

Significant imbalance
Rights and obligations tilted significantly in favour of the trader at the consumers expense. Need to consider the term in the context of the contract as a whole. Are there any balancing provisions in the consumer’s favour?

Good faith (‘fair and open dealing’)
Openness- procedural. Term should be clear and legible. No pitfalls or traps. Prominence to terms which may disadvantage customer.
‘Fair dealing’- trader should not seek to take advantage of the inequality of bargaining position. Fair dealing is procedural and substantive.

Question 49

Consequence if term is unfair?

Answer 49

S.62 (1)- if the term is unfair it is not binding on the consumer.

The contract can, however, continue without that unfair term.