Contract - Exemption Clauses & Unfair Terms

What is an exemption clause?

A contractual term that purpose to limit or exclude a liability that would otherwise attach to one of the contracting parties

What is common in a limiting exemption clause?

A cap on liability in relation to particular events at a particular sum.

What are the 3 points to consider whether a party can rely on an exemption clause?

incorporation, Construction, Statutory Controls

What is important regarding incorporation and exemption clauses?

Is the exemption clause part of the contract? Reasonable notice must be given

What is important regarding construction of an exemption clause?

Does the clause, as drafted, cover the alleged breach(es) and resulting loss

What are the elements of an exemption clause?

Statement about whether liability is entirely excluded or just limited to an amount, statement of which types of claims/duties it relates to, which types of loss the exemption relates to.

What is the general rule that exemption clauses are construed contra proferentem?

if there is doubt as to the meaning/scope of the exemption clause, the ambiguity will be resolved against the party seeking to rely on it

What must a party do if they are seeking to rely on an exemption clause to exclude liability from negligence?

Use clear wording - use the word negligence or wide enough wording to include negligence.

If general words are used to exclude liability for negligence, what will their effectiveness depend on?

Whether the only basis for liability is negligence (effective) or cases where the party will be liable irrespective of negligence (ineffective)

Which types of contracts is the contra proferentem used not really used for?

Commercial contracts between parties of equal bargaining power.

To what extent should exemption clauses be brought to the other party's attention?

- terms must be communicated clearly and at or before the time of contracting.

- what is a suitable level of notice depends on what is being excluded

(e.g., referring party to read full contract on the website would not bring validly an onerous clause excluding liability for personal injury to their attention)

What does the doctrine of privity mean about third parties and exemption clauses?

A party outside of a contract cannot benefit from its terms

What must be considered if an exemption clause has been incorporated & properly construed and excludes/limits liability, what must you then consider?

If contract between businesses - UCTA If contract between business & consumer - CRA

What does UCTA impose on exemption clauses?

Limits on the extent to which liability for breach, negligence can be avoided by terms - certain clauses have no effect & others are effective only if they are reasonable

To what does UCTA apply to?

Exemption clauses regarding business liability - breaches arising during the course of a business where both parties are acting in the course of a business or from business premises

What does UCTA regulate for exemption clauses regarding loss resulting from negligence?

Cannot restrict liability for death/personal injury resulting from negligence - any attempt to do this is void. Terms limiting liability for other loss or damage are only valid if reasonable.

What does negligence include breach of for the purposes of UCTA?

Obligation arising from terms of a contract to take reasonable care or skill in the performance of the contract.

What does UCTA regulate about exemption clauses for breach of statutory implied terms about quality of goods supplied?

Exemption clauses limiting/excluding liability for breach of implied terms of sale of goods can only be valid if reasonable

What is the position if the term limiting liability is in a negotiated agreement?

UCTA does not apply, term can be valid if agreed

What is the position where a party deals on its own standard terms of business which limits liability?

It can only be valid if reasonable

Can a party claim through a contractual term to be entitled to render a contractual performance different from that reasonably expected or claim to be entitled to render no performance at all?

Only if the term is reasonable

When a party's standard terms are subject of negotiation, are the parties dealing on negotiated terms or standard terms?

Standard terms if they remain untouched

What is the position if the exemption clauses are from one party's standard terms?

UCTA will apply even if other clauses are negotiated

When does UCTA NOT apply to exemption clause?

Only if they have been negotiated & agreed on

What is the reasonableness test for UCTA for business liability?

The term must be fair & reasonable, having regard to circumstances which were or ought reasonably have been known to the parties when the contract was made.

Which factors may be considered when assessing whether an exemption clause/term was fair, just and reasonable in the UCTA reasonableness test?

Strength of bargaining positions

Inducements to agree to terms

Customer knew or ought reasonably to have know of the existence/extent of the term

Reasonable at the time to expect compliance with the condition

Where goods were manufactured/processed/adapted to the special order of the customer

According to UCTA, when is the requirement of reasonableness judged?

At the time the contract was made

When does UCTA apply?

When both parties are businesses/acting in the course of business

In what areas does the CRA regulate unfair terms?

Attempts to exclude liability for breach of contract in business contracts, Regulates unfair terms generally - regulation of a large class of terms of consumer contracts

How does the CRA regulate exemption clauses which exempt/limit liability for negligence?

Any clause which exempts/limits liability for death/personal injury are not binding on the consumer

How does the CRA regulate exemption clauses which exempt/limit liability for breach of implied terms about goods?

They will not be binding on the consumer

How does the CRA regulate exemption clauses which exempt/limit liability for breach of implied terms about digital content?

They will not be binding on the consumer

How does the CRA regulate exemption clauses which exempt/limit liability for breach of implied terms about services?

Any attempt to ENTIRELY exclude the service to be provided with reasonable skill & care will not be binding.

Any attempt to restrict/limit liability on reasonable care & skill of service is not binding if it prevents the recovery of the price paid - it cannot be limited to less than the price paid

What is the general unfairness regulation in the CRA for consumer contracts?

Any term is not binding on the consumer if it is unfair

Terms specifying main subject matter of the contract are not subject to fairness assessment if they are transparent & prominent

When is a term 'unfair'?

If contrary to the requirements of good faith it causes significant imbalance to the parties' rights & obligations under the contract to the detriment of the consumer

When is unfairness judged from?

The time the contract is entered into

What kinds of anti-avoidance methods are covered by the CRA?

Parallel contracts promising not to take action regarding the first contract

Making the liability subject to conditions or limiting remedies available