Validity of contract terms

Question 1

Do courts have the power to monitor the validity of contract terms?

Answer 1

-courts don’t have a general power to mointor validity, fairness or reaosnableness of terms because of the principle of freedom of contract

Question 2

How do courts address validity if they don’t have a general power to do so?

Answer 2

problems of unfairness are addressed through requirement of ‘fair and reasonable’ notice must be given for onerous terms

Question 3

What types of contract terms are invalid under common law?

Answer 3

• penalty clauses
• liquidated damages clauses (if the clause provide for damages disproportionately large to the actual loss)
• restraint of trade clauses (if unreasonable)

Question 4

Benefits of exclusion clauses

Answer 4

-make arrangements for contractual risk allocation

Question 5

Negatives of exclusion clauses

Answer 5

• stronger party can use it against weaker party to exclude their liability
• not easy to regulate

Question 6

Goodlife v Hali Fire (2018)

Answer 6

held that an exemption clause in a standard form of contract was not onerous because fair and reasonable notice was given
-if exemption clause is not regarded as onerous there will be no higher threshold requirement of reasonable or fair notice

Question 7

Contra proferentem rule

Answer 7

-any ambiguity in the exemption clause will be resolved against the party who proposed the term

Question 8

Rule for exemption clauses that seek to exclude liability for a fundamental breach

Answer 8

• a breach which addresses the root of the contract
• the wider the clause the less likely the other party has agreed to it
• according to Lord Denning this is a rule of law if a party attempts this it will be invalid as a matter of law (this was overruled)

Question 9

Photo production ltd v securior (1980)

Answer 9

• D provided security for P and their job was to protect the factory
• D’s employee lit fire and factory burnt down
• contract was only on D’s standard conditions
• contained clause that stated they would not be liable for any damage unless it could be reasonably avoided
• HoL held the parties were bargainaing on ewual terms, the clause was very clear and that the damage was covered by the clause
• rejection of the fundamental breach of contract as a rule of law

Question 10

Glynn v Margetson (1893)

Answer 10

• bill of lading provided for the shipping of oranges from malaga to liverpool
• bill contained deviation clause which allowed ship owners to visit any ports in the mediterrarean during the voyage
• shipowners visited a port that was outside their course to liverpool
• oranges were damaged
• shipowners could not escape liability
• main intent was to carry undamaged oranges from M to L
• court held D were liable as this was a fundamental breach

Question 11

What is UCTA concerned with

Answer 11

-not concerned with fairness but with reasonableness

Question 12

Questions for the application of UCTA

Answer 12

1. Does the contract fall within the scope of UCTA?
2. Does the clause in the contract fall within the scioe of UCTA?
3. What type of liability does the clause exclude? (to identify the operative provision)
4. What type of control does the operative provision exercise?

Question 13

What types of contracts does UCTA apply to?

Answer 13

-contracts concluded between parties acting in the course of a business according to s1(13)

Question 14

What type of contracts do not fall within scope of UCTA?

Answer 14

• schedule 1 of UCTA
• insurance contracts, contracts for the sale of land, contracts relating to intellectual property rights, contracts relating to formation/dissolution of companies
• contracts relating to securities
• consumer contracts
• international supply contracts where parties places of business are in different places (s23(3))

Question 15

Trident v First Flight 2009

Answer 15

• held that s26(4a) of UCTA as directed to any case in which the parties contemplated at negotiation that the goods would be transported across intl boundaries
• contract was concluded in UK and delivered in UK but parties were aware aircraft would be used in India
• it was an international supply contract so UCTA didn’t apply

Question 16

What type of clauses does UCTA apply to?

Answer 16

-exclusion clauses, limitation clauses, clause excluding or restricting rules of evidence/procedure, clauses with onerous conditions

Question 17

What does section 2 of UCTA apply to?

Answer 17

• negligence

- breach of reasonable care and skill

Question 18

What does section 3 of UCTA apply to?

Answer 18

• breach of contract

- strict liability

Question 19

What does section 26 of UCTA apply to?

Answer 19

-breach of SAG implied terms (satisfactory quality requirement)

Question 20

How do we establish what operative provision of UCTA to use?

Answer 20

• what is the cause of action for P?
• why is P suing on the facts of the case?
• what type of liability has been breached?

Question 21

Method of control for s2 of UCTA

Answer 21

• if the clause excludes negligence liability for death/personal injury the clause is void
• if it limits/excludes negligence for any other type of harm its subject to reasonableness test

Question 22

Where does section 3 of UCTA apply?

Answer 22

• only applies where one party deals on the others written standard terms of business
• applies to clause allowing contractual performance substantially different what was reasonably expected
• applies to clause allowing no performance at all despite contractual obligation

Question 23

Where does section 6 of UCTA apply?

Answer 23

• deals with clauses that attempt to limit liability for breach of implied terms under SGA
• implied terms under SGA only apply in the course of a business

Question 24

method of control section 3 of UCTA

Answer 24

• clause subject to reasonableness test

- if its reasonable it survives ucta and is enforceable and vice vers a

Question 25

Method of control for s6 of UCTA

Answer 25

• if it applies to s12 of SGA if its a clause that seeks to exclude seller’s liability for breach of implied terms the clause is automatically void
• if it applies to s13-15 SGA and there is a clause that seeks to limit liability for satisfactory quality it will be enforceable if it passes reasonableness test

Question 26

How does s3 of misrepresentation act deal with fraudulent misrepresentation?

Answer 26

-if a term seeks to limit liability for fraudulent misrep its void

Question 27

Method of control for s3 of misrepresentation act

Answer 27

-if its innocent/negligent misrep you apply reasonableness test in s11 UCTA

Question 28

Definition of reasonableness test in UCTA s11(1)

Answer 28

‘term shall have been a fair and reasonable one to be included’

Question 29

Section 11 Schedule 2 of UCTA, Factors courts take into consideration when regarding reasonableness of a clause

Answer 29

• bargaining positions of the parties
• whether customer received inducement to agree tot he term
• whether customer knew/should have known about extent/existence of the term
• whether the term restrict liability if some condition is not complied. was it reasonable to expect compliance with that term?

Question 30

Section 11(4) additional factors for reasonableness of limitation clauses

Answer 30

• courts will look at which part had greater resources to pay for damages
• availability of insurance