W7 Exemption Clauses

Question 1

What is an exemption clause?

Answer 1

A clause in a contract which excludes (or limits) liability

Question 2

How can clauses (specifically exemption clauses) be incorporated into a contract?

Answer 2

Signature - L’Estrange v Graucob
Notice
Previous Dealing - McCutcheon v McBrayne
Trade custom - British Crane v Ipswich Plant
(In law)

Question 3

What are the two types of exemption clause?

Answer 3

Exclusions
Limitations

Question 4

What is the difference between exclusions and limitations?

Answer 4

Exclusions prevent all liability
Limitations cap liability or limit to certain circumstances
Court favours limitations as a reasonable allocation of risk - Ailsa Craig v Malvern Shipping

Question 5

What are defences for breach of contract?

Answer 5

Exemption clause
Frustration
Causation
Remoteness

Question 6

What are the stages when considering an exemption clause?

Answer 6

1) Incorporation - is it part of the contract?
2) Construction - does it apply to the situation?
3) Statute - is it unfair/overridden?

Question 7

Unfair Contract Terms Act 1977

Answer 7

Deals strictly with B2B and exemption clauses.
Places controls on ability to exempt liability for negligence, breach of terms, and breach of statutory terms.
Key sections:
s2 - Negligence
s3 - Breach of contractual terms
s6 - breach of implied terms under SoGA or SGSA
s11 - Reasonableness test
Schedule 2 - further reasonableness guidelines

Question 8

Consumer Rights Act 2015

Answer 8

Deals with business to consumer contracts and fairness
Includes unfairness test s62(1)
Prevents some terms from being enforceable

Question 9

Photo Production v Securicor

Answer 9

Facts: Warehouse had a contracted security guard. On a cold night, the security guard lit a fire to keep warm, got out of hand, caused £650k of damages. Security company had included an exemption saying they weren’t liable for fires. Court allowed the exemption clause.

Significance: Example of exemption clause decision based on construction. Also ruled that even if a breach allows termination, the exemption clause still applies.

Question 10

What are the exceptions to incorporation by signature?

Answer 10

Overriding oral agreement - Curtis v Chemical Cleaning & Dyeing (exemption clause); J Evans v Merzario (term)
Document has no contractual effect - Grogan v Meredith Plant Hire
Non est factum/Fraud - Foster v Mackinnon

Question 11

L’Estrange v Graucob

Answer 11

Facts: Café owner contracted to install a cigarette machine. Café owner signed the contract, which included clauses protecting the owner of the machine from liability for faults in the machine. Café owner sued when a fault developed, saying she hadn’t read the contract as she didn’t have her glasses with her. Court ruled that was her fault, the contract was perfectly legible, so it was binding.

Significance: Example of (unsuccessful) unilateral mistake/failed non est factum defence. Example of binding power of signature.

Question 12

McCutcheon v McBrayne

Answer 12

Facts: Trying to ship a car to island in the Hebrides. Car owner had done this before, typically is asked to sign a disclaimer by the ferry. In this instance, wasn’t asked to sign a disclaimer. Car fell off the ferry, ferry said they weren’t responsible because of disclaimer, owner said he hadn’t signed one in this instance. Court argued if you do repeated business on same consistent terms, then those terms can be implied unless expressly repealed.

Significance: Term implied by previous dealing.

Question 13

British Crane v Ipswich Plant

Answer 13

Facts: Two crane companies had a partnership agreement, leased a crane to then lease to a customer, customer sank it. Obligation to extract the crane was unclear between owner vs lessor. Generally customer has obligation to ensure to return the machine. Taken as a convention.

Significance: Example of term implied by trade convention.

Question 14

Curtis v Chemical Cleaning & Dyeing

Answer 14

Facts: Wedding dress needed cleaning. Dry cleaners required signature on standard t+c’s. Assistant said it’s just to protect in case of damage to beads and sequences. When picking up, the wedding dress was in worse condition than it was when dropped off. The exemption covered any kind of damage. Court found that the owner had been induced to sign based on an overriding oral assurance, so cleaners couldn’t rely on the exemption clause.

Significance: Example of overriding oral assurance

Question 15

Grogan v Meredith Plant Hire

Answer 15

Facts: Document in question (with signature) was a timesheet, not a contract.

Significance: No incorporation if document has no contractual effect.

Question 16

Foster v Mackinnon

Answer 16

Facts: Signatory was senile, couldn’t recognise their own signature, and was only shown the back of the document. This was intentionally done by other party, so it was fraud.

Significance: Successful non est factum defense - requires fraud/incapacity/etc.

Question 17

What are the rules for notice and incorporation?

Answer 17

Terms can be incorporated by reference - Thompson v London Midland Scottish Railway
Notice must be a reasonable effort to bring attention to the term - Parker v Southeastern Railway
Timing - must be before contracting (Olley v Marlborough Court Hotel)/ when other party is still practically able to back out (Thornton v Shoe Lane Car Park)
If term is particularly onerous, must have drawn attention to it - Interphoto v Stiletto

Question 18

Thompson v London Midland Scottish Railway

Answer 18

Facts: Thompson got off train while still moving, was injured, sued railway. Railway said on the ticket was text relating to standard T+Cs, which included an exemption. Court ruled reasonable, provided T+Cs are made available.

Significance: Terms incorporated by notice

Question 19

Parker v Southeastern Railway

Answer 19

Facts: Parker left his bag in cloakroom at Paddington. Given a cloakroom ticket with a “see back”. On the back, their liability was limited to £10. Bag went missing, Parker sued them. Judge said it depends on the manner in which he was given the ticket - whether he was made aware there was writing on it or not.

Significance: Incorporation by notice/type of document

Question 20

Olley v Marlborough Court Hotel

Answer 20

Facts: The Olleys were a married couple on a weekend away at this hotel. Checked in at reception, went upstairs, then went out to dinner. As they were leaving, saw on the backdoor of the hotel room, there was a sign discliaming liability for loss of items unless they were in the hotel safe at reception. While out, a thief broke in and stole valuables. Olleys sued, hotel argued exemption clause, court argued that contract was made upon check in, before they could have seen the clause.

Significance: Incorporation must be on or before time of contracting.

Question 21

What are the rules for previous dealing and incorporation?

Answer 21

Must be consistent - McCutcheon v McBrayne
Must be regular/frequent - Spurling v Bradshaw

Question 22

Thornton v Shoe Lane Car Park

Answer 22

Facts: Thornton wanted to park his car at Shoe Lane car park. Was a drive up car park with automated ticket machine and barrier. Ticket and car park had exemption clauses. Thornton was injured, sued, car park argued exemption clause. Thornton argued that the contract was made upon entry. Car park argued the ticket was time of contracting. Denning found that, even if a ticket is taken and contains an unappealing clause, there’s nothing a patron can do - still need to pay, unlikely they can reverse, can’t get a refund, etc. Contrast with in-person ticket sales, where you can argue/undo with the ticket assistant.

Significance: Incorporation - timing/conditions.

Question 23

What type of document does not incorporate terms?

Answer 23

One that a reasonable person wouldn’t expect to contain contractual provisions (no ICLR) - Chapelton v Barry

Question 24

Chapelton v Barry

Answer 24

Facts: Chapelton went to Barry Island for holiday. At the beach, he saw a pile of deck chairs and a sign saying “take a deck chair. Please pay by purchasing a ticket”. 2p for 3 hours. Bought a ticket, the deck chair broke and he suffered an injury. Council said the ticket contained an exemption clause. Court found that the sign was the offer, taking the deck chair was acceptance. Also that a reasonable person would think of the ticket as a receipt, not containing contractual terms.

Signficance: Incorporation - nature of document - reasonable person must expect contractual provisions

Question 25

George Mitchel v Finney Lock Seeds

Answer 25

Facts: Mitchell was a seed merchant who purchased seeds from Finney Lock Seeds. Mitchell resold the seeds to farmers, but the seeds failed to germinate. Mitchell sued Finney Lock for breach of contract, alleging that the seeds were not merchantable and were not fit for the purpose for which they were sold. The House of Lords held that Finney Lock was liable for breach of contract. The court held that the exclusion clause on the seed label was ineffective because it was not sufficiently brought to the attention of Mitchell. The court also held that even if the exclusion clause had been brought to Mitchell’s attention, it would not have been effective because it was unreasonable.

Significance: Exemption clauses - reasonableness determined on the facts of each case.

Question 26

What is the contra proferentem rule?

Answer 26

Party seeking to rely on an ambiguous provision will be at a disadvantage

Question 27

What is the name of the rule about relying on ambiguous provisions?

Answer 27

Contra proferentem rule

Question 28

Ailsa Craig v Malvern Shipping

Answer 28

Facts: Ailsa Craig Fishing Company Ltd hired a security firm to supervise their fishing boats in a harbour. The security firm negligently allowed one of Ailsa Craig’s boats to crash into another boat belonging to Malvern Fishing Company Ltd . Malvern Fishing sued Ailsa Craig for damages, and Ailsa Craig sought an indemnity from the security firm for those damages. The contract between Ailsa Craig and the security firm contained a limitation clause limiting the firm’s liability in most circumstances to £1,000. The House of Lords held that the limitation clause was valid and enforceable. The court held that the clause was not an exclusion clause but a limitation clause, and that limitation clauses are generally enforceable unless they are unreasonable. The court found that the £1,000 limit in the clause was not unreasonable in the circumstances.

Significance: Exemption clauses - Courts are more lenient with limitations than full exclusions, as it’s a reasonable allocation of risk.

Question 29

What is the test for exemption clauses and negligence?

Answer 29

Canada Steamship v R:
1) Does the clause specifically address negligence?
2) If not, is it wide enough to cover negligence?
3) If so, is it so wide that it could realistically cover another type of liability?

Question 30

Canada Steamship v R

Answer 30

Facts: Crown’s negligence caused a fire destroying Canada Steamship property, CS sued for damages. Crown had a exemption clause, which they claimed covered the negligence, however it was very broad. Privy Council said the exclusion was unreasonable and too ambiguous to be applicable.

Significance: Resulted in the negligence test for exemption clauses.

Question 31

How to apply UCTA to negligence + exemption clauses?

Answer 31

1) Does it meet the definition of negligence? - s1(1)
2) What was the damage? Death/injury = no exemption. Otherwise exemption only applies if reasonable, per section 11 test

Question 32

How to apply UCTA to breach of contract?

Answer 32

1) If breach of contractual term, see section 3
2) If breach of term implied by Sale of Goods Act or Supply of Goods and Services Act, then see section 6
Contracts as written are generally valid if individually negotiated
If they are standardized terms, then only apply if reasonable

Question 33

St Albans v International Computers

Answer 33

Facts: Council bought faulty software which led to a shortfall in community revenue. There was a limitation in Int’l Computers’ standard T&Cs which capped limitation at £100k, but UCTA found it to be unreasonable.

Significance: Exemption clauses - UCTA - reasonableness of standard T&Cs vs negotiated contracts

Question 34

Deals strictly with B2B and exemption clauses.
Places controls on ability to exempt liability for negligence, breach of terms, and breach of statutory terms.
Key sections:
s2 - Negligence
s3 - Breach of contractual terms
s6 - breach of implied terms under SoGA or SGSA
s11 - Reasonableness test
Schedule 2 - further reasonableness guidelines

Answer 34

Unfair Contract Terms Act 1977

Question 35

Deals with business to consumer contracts and fairness
Includes unfairness test s62(1)
Prevents some terms from being enforceable

Answer 35

Consumer Rights Act 2015

Question 36

Facts: Warehouse had a contracted security guard. On a cold night, the security guard lit a fire to keep warm, got out of hand, caused £650k of damages. Security company had included an exemption saying they weren’t liable for fires. Court allowed the exemption clause.

Significance: Example of exemption clause decision based on construction. Also ruled that even if a breach allows termination, the exemption clause still applies.

Answer 36

Photo Production v Securicor

Question 37

Facts: Café owner contracted to install a cigarette machine. Café owner signed the contract, which included clauses protecting the owner of the machine from liability for faults in the machine. Café owner sued when a fault developed, saying she hadn’t read the contract as she didn’t have her glasses with her. Court ruled that was her fault, the contract was perfectly legible, so it was binding.

Significance: Example of (unsuccessful) unilateral mistake/failed non est factum defence. Example of binding power of signature.

Answer 37

L’Estrange v Graucob

Question 38

Facts: Trying to ship a car to island in the Hebrides. Car owner had done this before, typically is asked to sign a disclaimer by the ferry. In this instance, wasn’t asked to sign a disclaimer. Car fell off the ferry, ferry said they weren’t responsible because of disclaimer, owner said he hadn’t signed one in this instance. Court argued if you do repeated business on same consistent terms, then those terms can be implied unless expressly repealed.

Significance: Term implied by previous dealing.

Answer 38

McCutcheon v McBrayne

Question 39

Facts: Two crane companies had a partnership agreement, leased a crane to then lease to a customer, customer sank it. Obligation to extract the crane was unclear between owner vs lessor. Generally customer has obligation to ensure to return the machine. Taken as a convention.

Significance: Example of term implied by trade convention.

Answer 39

British Crane v Ipswich Plant

Question 40

Facts: Wedding dress needed cleaning. Dry cleaners required signature on standard t+c’s. Assistant said it’s just to protect in case of damage to beads and sequences. When picking up, the wedding dress was in worse condition than it was when dropped off. The exemption covered any kind of damage. Court found that the owner had been induced to sign based on an overriding oral assurance, so cleaners couldn’t rely on the exemption clause.

Significance: Example of overriding oral assurance

Answer 40

Curtis v Chemical Cleaning & Dyeing

Question 41

Facts: Document in question (with signature) was a timesheet, not a contract.

Significance: No incorporation if document has no contractual effect.

Answer 41

Grogan v Meredith Plant Hire

Question 42

Facts: Signatory was senile, couldn’t recognise their own signature, and was only shown the back of the document. This was intentionally done by other party, so it was fraud.

Significance: Successful non est factum defense - requires fraud/incapacity/etc.

Answer 42

Foster v Mackinnon

Question 43

Facts: Thompson got off train while still moving, was injured, sued railway. Railway said on the ticket was text relating to standard T+Cs, which included an exemption. Court ruled reasonable, provided T+Cs are made available.

Significance: Terms incorporated by notice

Answer 43

Thompson v London Midland Scottish Railway

Question 44

Facts: Parker left his bag in cloakroom at Paddington. Given a cloakroom ticket with a “see back”. On the back, their liability was limited to £10. Bag went missing, Parker sued them. Judge said it depends on the manner in which he was given the ticket - whether he was made aware there was writing on it or not.

Significance: Incorporation by notice/type of document

Answer 44

Parker v Southeastern Railway

Question 45

Facts: The Olleys were a married couple on a weekend away at this hotel. Checked in at reception, went upstairs, then went out to dinner. As they were leaving, saw on the backdoor of the hotel room, there was a sign discliaming liability for loss of items unless they were in the hotel safe at reception. While out, a thief broke in and stole valuables. Olleys sued, hotel argued exemption clause, court argued that contract was made upon check in, before they could have seen the clause.

Significance: Incorporation must be on or before time of contracting.

Answer 45

Olley v Marlborough Court Hotel

Question 46

Facts: Thornton wanted to park his car at Shoe Lane car park. Was a drive up car park with automated ticket machine and barrier. Ticket and car park had exemption clauses. Thornton was injured, sued, car park argued exemption clause. Thornton argued that the contract was made upon entry. Car park argued the ticket was time of contracting. Denning found that, even if a ticket is taken and contains an unappealing clause, there’s nothing a patron can do - still need to pay, unlikely they can reverse, can’t get a refund, etc. Contrast with in-person ticket sales, where you can argue/undo with the ticket assistant.

Significance: Incorporation - timing/conditions.

Answer 46

Thornton v Shoe Lane Car Park

Question 47

Facts: Chapelton went to Barry Island for holiday. At the beach, he saw a pile of deck chairs and a sign saying “take a deck chair. Please pay by purchasing a ticket”. 2p for 3 hours. Bought a ticket, the deck chair broke and he suffered an injury. Council said the ticket contained an exemption clause. Court found that the sign was the offer, taking the deck chair was acceptance. Also that a reasonable person would think of the ticket as a receipt, not containing contractual terms.

Signficance: Incorporation - nature of document - reasonable person must expect contractual provisions

Answer 47

Chapelton v Barry

Question 48

Facts: Mitchell was a seed merchant who purchased seeds from Finney Lock Seeds. Mitchell resold the seeds to farmers, but the seeds failed to germinate. Mitchell sued Finney Lock for breach of contract, alleging that the seeds were not merchantable and were not fit for the purpose for which they were sold. The House of Lords held that Finney Lock was liable for breach of contract. The court held that the exclusion clause on the seed label was ineffective because it was not sufficiently brought to the attention of Mitchell. The court also held that even if the exclusion clause had been brought to Mitchell’s attention, it would not have been effective because it was unreasonable.

Significance: Exemption clauses - reasonableness determined on the facts of each case.

Answer 48

George Mitchel v Finney Lock Seeds

Question 49

Facts: Ailsa Craig Fishing Company Ltd hired a security firm to supervise their fishing boats in a harbour. The security firm negligently allowed one of Ailsa Craig’s boats to crash into another boat belonging to Malvern Fishing Company Ltd . Malvern Fishing sued Ailsa Craig for damages, and Ailsa Craig sought an indemnity from the security firm for those damages. The contract between Ailsa Craig and the security firm contained a limitation clause limiting the firm’s liability in most circumstances to £1,000. The House of Lords held that the limitation clause was valid and enforceable. The court held that the clause was not an exclusion clause but a limitation clause, and that limitation clauses are generally enforceable unless they are unreasonable. The court found that the £1,000 limit in the clause was not unreasonable in the circumstances.

Significance: Exemption clauses - Courts are more lenient with limitations than full exclusions, as it’s a reasonable allocation of risk.

Answer 49

Ailsa Craig v Malvern Shipping

Question 50

Facts: Crown’s negligence caused a fire destroying Canada Steamship property, CS sued for damages. Crown had a exemption clause, which they claimed covered the negligence, however it was very broad. Privy Council said the exclusion was unreasonable and too ambiguous to be applicable.

Significance: Resulted in the negligence test for exemption clauses.

Answer 50

Canada Steamship v R

Question 51

Facts: Council bought faulty software which led to a shortfall in community revenue. There was a limitation in Int’l Computers’ standard T&Cs which capped limitation at £100k, but UCTA found it to be unreasonable.

Significance: Exemption clauses - UCTA - reasonableness of standard T&Cs vs negotiated contracts

Answer 51

St Albans v International Computers