LAW103 Topic 4 - Terms of Contract II: Incorporation, Limitation, Exclusion and Penalty Clauses

What is incorporation by signature?

a contract when a party signs a contractual document, even if they have not read it

What is incorporation by notice?

Terms may be incorporated if reasonable steps are taken to bring them to the other party’s attention before or at contract formation

What is incorporation through a course of dealing?

Terms may become incorporated through previous consistent and regular dealings between parties

What is an exclusion clause?

contractual term seeking to exclude or limit liability for breach, negligence, or loss.

What is a limitation clause?

A clause restricting liability to a certain amount or type of loss rather than excluding it entirely

What is the contra proferentem rule?

Ambiguous exclusion clauses are interpreted against the party seeking to rely on them.

What is a penalty clause?

A contractual clause imposing punishment for breach rather than compensating for genuine loss.

What is liquidated damages?

A genuine pre-estimate of loss agreed in advance by the parties.

What is the “red hand rule”?

Particularly onerous or unusual terms require especially clear notice.

What happened in Oscar Chess Ltd v Williams?

Seller incorrectly stated a car’s age based on registration documents.

Principle from Oscar Chess Ltd v Williams?

A statement by a non-expert is more likely to be a representation than a contractual term.

What happened in Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd?

Dealer incorrectly stated mileage information about a car.

Principle from Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd?

Statements by experts are more likely to be contractual terms.

What rule was established in L'Estrange v F Graucob Ltd?

Signing a contractual document binds a party to its terms whether read or not.

what exception could be made when signing a contractual document?

Fraud or misrepresentation may prevent incorporation.

What rule came from Olley v Marlborough Court Ltd?

Terms communicated after contract formation are not incorporated.

Why is Chapelton v Barry Urban District Council important?

A receipt or ticket is only contractual if a reasonable person would see it as containing contractual terms

What principle was established in Parker v South Eastern Railway Co?

Reasonable notice of terms is sufficient for incorporation.

What did Thompson v London Midland and Scottish Railway Co confirm?

A person may be bound by terms even if they cannot read them, provided reasonable notice was given

What is Lord Denning’s “red hand rule” from J Spurling Ltd v Bradshaw?

The more unreasonable a clause is, the greater the notice required.

What happened in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd?

Hidden term imposed excessive holding fees for photographs.

Principle from Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd?

Highly onerous terms require explicit notice before incorporation.

What principle came from Thornton v Shoe Lane Parking Ltd?

In automatic machine contracts, terms must be communicated before acceptance.

What rule was established in McCutcheon v David MacBrayne Ltd?

Previous dealings only incorporate terms if the dealings are regular and consistent.

What are the Canada Steamship guidelines from Canada Steamship Lines Ltd v The King?

Courts determine whether exclusion clauses cover negligence by:

1. Looking for express mention of negligence

2. Checking if wording is wide enough

3. Interpreting ambiguity against the party relying on the clause

What happened in Wall v Rederiaktiebolaget Luggude?

Court interpreted exclusion clause narrowly against the defendant.

What did Photo Production Ltd v Securicor Transport Ltd decide?

Exclusion clauses can cover even serious or fundamental breaches if clearly drafted.

What test was established in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd?

A clause is a penalty if it is extravagant and unconscionable compared with likely loss.

What modern test came from ParkingEye Ltd v Beavis?

A clause is enforceable if it protects a legitimate interest and is not exorbitant or unconscionable

Compare Olley and Thornton.

• Olley: Notice after contract formation ineffective

• Thornton: Automated contracts form immediately upon machine acceptance

Compare Spurling and Interfoto.

• Spurling: Introduced red hand rule

• Interfoto: Applied and strengthened it for onerous terms

Compare Dunlop and ParkingEye.

• Dunlop: Focus on genuine pre-estimate of loss

• ParkingEye: Focus on legitimate business interest

What is the purpose of UCTA 1977?

To control unfair exclusion and limitation clauses.

What is an exclusion clause?

A term trying to avoid or limit liability.

Can a business exclude liability for death or personal injury caused by negligence?

No — never valid.

When can liability for other negligence losses be excluded?

Only if the clause is reasonable.

What test does UCTA mainly use?

The reasonableness test.

What does the court consider in the reasonableness test?

Bargaining power, awareness of the term, fairness, and available alternatives.

What is the main idea behind UCTA?

Businesses cannot rely on unfair exclusion clauses.

What is the purpose of the Consumer Rights Act 2015?

To protect consumers from unfair contract terms.

What areas does CRA protect?

Goods, services, and digital content.

What rights do consumers have with goods?

Goods must be satisfactory quality, fit for purpose, and as described.

Can businesses remove consumer rights about faulty goods?

No

What standard must services meet under CRA?

Reasonable care and skill.

What happens to unfair terms under CRA?

They are not binding on the consumer.

What makes a term unfair under CRA?

It creates a significant imbalance against the consumer and is not in good faith.

What are “core terms”?

Main contract terms like price or subject matter.

When are core terms protected from review?

When they are transparent and prominent.

Can businesses exclude liability for death or personal injury caused by negligence under CRA?

No

What is the “grey list” in CRA?

Examples of terms that may be unfair.

What is the main difference between UCTA and CRA?

UCTA controls exclusion clauses; CRA protects consumers from unfair terms generally.

Which test does UCTA use?

Reasonableness.

Which test does CRA use?

Fairness

Which Act mainly applies to consumers?

CRA 2015.

What is the key exam question for both Acts?

Is the term enforceable?