Exemption clauses and unfair terms

Question 1

Exemption clause process

Answer 1

Is the term incorporated?
Does the term cover the loss through construction?
UTCA - business to business or business to consumer
UTCCR - business to consumer, non core terms

Question 2

Incorporaton through signature

Answer 2

Clasues can be incorporated through signature (L’Estrange v Graucob [1934]) with the exceptions of misrepresentation (Curtis v Chemical Cleaning [1951]), non est factum (Saunders v Anglia Building Society [1971]), and where the document does not purport to have contractual effect (Grogan v Robin Meredith Plant Hire [1996]).

Question 3

Incorporation through notice

Answer 3

Clauses can be incorporated through notice which must be contemporaneous (Olley v Marlborough Court Hotel [1949]), reasonably sufficient notice must be given (Parker v South Eastern Ry (1877)), the document must purport to have contractual effect (Parker v South Eastern Ry (1877)) and onerous or unusual terms should be given more notice (i.e. in red ink) (Spurling v Bradshaw [1956] and then Interfoto v Stiletto Visual Programmes [1989]).

Question 4

Incorporation through a course of dealings

Answer 4

Clauses can also be interpreted through a course of dealings but it must be regular and consistent (McCutcheon v MacBrayne [1964]) on the same set of terms (Kendall v Lillico [1969]). If they share equal bargaining power it is more likely to find incorporation through a course of dealings (British Crane Hire v Ipswich Plant Hire [1975]). Prior knowledge of the term is not needed (Kendall v Lillico [1969]).

Question 5

Construction

Answer 5

A strict interpretation is applied (Alison v Wallsend Shipway [1927]) where express words to that effect must be used (Kendall v Lillico [1969]).

Question 6

Contra proferentum rule

Answer 6

The contra proferentum rule is applied wherein the exemption clause will aways be construed against the party seeking to rely on it (John Lee v Railway Exec [1949]).

Question 7

Construction of exemption of liability for negligence

Answer 7

even more restricted (UTCA s2 and UTCCR sched 2). Courts presume that party did not wish to exclude negligence liability (Gillespie v Bowles [1973]). It must be clear and unambiguous (Rutter v Palmer [1922]).

Question 8

Canada Steamships Lord Morton test

Answer 8

If the clause can extend beyond negligence, the term will be interpreted to extend to that and not cover negligence (Canada Steamships). The rules set out in this case are that the clause must expressly exclude negligence liability, any doubt should be resolved against the party seeking to rely, and the clause should cover anything that is not negligence. They are ‘aids to cosntruction’ (HIH Casualty v Chase Bank). The exclusion of negligence must be the ‘head of damage’ (Aldersdale v Hendon Laundry [1945]).

Question 9

Limitation clauses

Answer 9

Limitation clauses are interpreted less strictly (Ailsa Craig Fishing v Malvern Fishing [1983]).

Question 10

Fundamental breach

Answer 10

Fundamental terms cannot be affected by exemption clauses (Smeaton Hanscomb v Sasson [1953]). Likewise fundamental breaches cannot be exempted from when the individual is not carrying out the contract they should be (Spurling v Bradshaw [1956] and Alexander v Ry Exec [1951]). Fundamental breach was laid to rest in Photo Production v Securicor [1980] however, now fundamental breach can be protected against as was seen from this case.

Question 11

UCTA 1977

Answer 11

Once a term has been incorporated and constructed to cover the damage, this act will be applied.

Question 12

UCTA applies to…

Answer 12

UCTA applies only to business liability, things done ‘in the course of business…’ (s2). A business can be a public authority too.

Question 13

Business as a consumer?

Answer 13

A business can also deal as a consumer (R&B Customs v United Dominions Trust [1988]) if the goods are of a type ordinarily consumed by consumers and not businesses (s12(1)).

Question 14

Liability for negligence

Answer 14

Liability for nelgience is subject to restrictions in s2 – the clause must be exact and precise, and personal injury or death cannot be excluded for negligence. Guarantees cannot exclude liability for negligence. All exclusions of nelgignece liability are subject to the reasonable test found in s11, considering the provisions of Sched 2.

Question 15

Test of reasonableness

Answer 15

Found in s11, considering the considerations of Sched 2

Question 16

Requirements of reasonableness (s11 pointing to Sched 2).

Answer 16

requires that a term is not too onerous and the courts take into account the relative bargaining strength of the parties, the abiity of the other party to enter a contract with another party without this term, whether they knew about the extent of the term, how likely the breach was to occur and whether the goods were manufactured or specially designed for the consumer. George Mitchell [1983] states that the courts will decide on what side of the balance the reasonableness lies.

Question 17

Imposed clauses

Answer 17

Imposed clauses are more unreasonable than common terms (Howard Marine Dredging [1978]), if pay is offered to remove the clause it will be more reasonable (Gillespie v Roy Bowles Transport [1973]), the availability of insurance is important but not decisive (Balmoral Group v Borealis [2006]), the term must be incredibly precise, it must be reasonable enough to discover the defect or damage (Green v Cade Bros Farms [1978]).

Question 18

UCCTR 1999

Answer 18

In place to implement an EU Directive.

Question 19

UCCTR applies to…

Answer 19

Applies only to terms not individually negotiated. Applies to all ‘non-core’ terms of a contract. a core term is a term which “defines the main subject matter of the contract” (Reg 6(2)).

Question 20

Term is unfair if…

Answer 20

it is contrary to good faith, causes a significant imbalance in rights and obligations of the parties and is to the detriment of the consumer (Reg 5(1))

Question 21

Good faith

Answer 21

Good faith is defined as negotiated in fair and open dealing, in the absence of surprise and presence of informed choice (Dir Gen of Fair Trading v First National Bank [2001]).

Question 22

Significant imbalance

Answer 22

A significant imbalance requires that rights and obligations are titled considerably in the favour of the company (Dir Gen of Fair Trading v First National Bank [2001]).

Question 23

Plain, intelligible language

Answer 23

Reg 6 requires that written clauses are in plain, intelligible language (Office of Fair Trading v Abbey National [2008]) so that a regular person can understand them.

Question 24

Effect of an unfair term in UCCTR

Answer 24

An unfair term is not binding on the consumer (Reg 8(1)).