Exclusion Clauses

Three ways to limit exclusion clauses

Three ways to limit exclusion clauses

1. Incorporation

2. Construction

3. Legislation

Incorporation

To be valid an exclusion clause must be properly incorporated into the contract.

1)a) Signature

If you sign a contract you're bound, whether or not you have read the terms.

L’Estrange v Graucob

Held: As she had signed the contract, she was bound by this exclusion clause

Curtis v Chemical Cleaning & Dyeing Co

An over-riding oral statement that contradicts an exclusion clause will mean C is not bound by the clause

b) By reasonable notice

a clause can be incorporated into a contract if reasonable notice of its terms is given to the party before they enter into the contract

Olley v Marlborough Court Hotel

Notice must be given before a contract is concluded.

Chapleton v Barry UDC

There must be a contractual document.

Thompson v LMS Railway

The company had taken reasonable steps to draw the exclusion clause to the notice of customers, so it was incorporated.

Thornton v Shoe Lane Parking Ltd

Lord Denning said that exclusion clauses needed to be in “red ink with a red hand pointing to it or something else equally startling.”

sub-rule - previous course of dealings

If the parties have dealt on the same terms in the past, knowledge of an exclusion clause can be

implied due to a consistent

Hollier v Rambler Motors (incorporation)

Visiting a garage 3 or 4 times over 5 years was not enough for there to be a 'course of dealings' so the exclusion clause was not incorporated into the contract

McCutcheon v David MacBrayne

C had sometimes signed a document when using D's ferries with an exclusion clause in it. On this occasion his relative put the car on the ferry. The term was not incorporated into the contract.

Construction

A. The ‘main purpose’ rule

B. The contra proferentem rule

Glynn v Margetson

Main purpose rule - an exclusion clause will not be constructed in a way which defeats the main purpose of the contract.

contra proferentem rule

Where there is ambiguity or uncertainty in the meaning or scope of an exclusion clause, it should be interpreted against the person who is seeking to rely on it.

Hollier v Rambler Motors (construction)

the term excluding liability for damage caused by fire to customers’ cars was interpreted not to include damage due to negligence as this was not mentioned in the clause

TransOcean UK Ltd v Providence Resources

The contra proferentem rule will not apply to commercial contracts where the parties bargain on equal terms and use clear words to apportion losses

Oliver Nobahar-Cookson v The Hut Group

Ambiguous exclusion clauses in commercial cases will be viewed narrowly

Legislation

The Unfair Contract Terms Act 1977

This applies to non-consumer contracts

s3

Where one party is subject to the other party’s standard terms of business, an exclusion clause will only be valid if it is reasonable.

Warren v Truprint Ltd

s11(5) UCTA - D could not show clause limiting liability to cost of replacement film was reasonable

There are three tests of reasonableness:

s11(1) – the ‘knowledge’ test

s11(2) Covers clauses excluding liability for breaches of the conditions implied in the Sale of Goods Act 1979

s11(4) specifically relates to limitation clauses.

Smith v Eric S Bush

s11(1) UCTA - the reasonableness of exclusion clauses is assessed in the light of what was known to the parties at the time the contract was made

Watford Electronics v Sanderson

a term limiting D's liability to the price of the goods supplied was reasonable as the parties were of equal bargaining power and the clause was negotiated when the contract was made. s112

s11(2) Covers clauses excluding liability for breaches of the conditions implied in the Sale of Goods Act 1979

• The strength of the bargaining position of the parties at the time

• Whether the customer received an inducement to agree to the term

• Whether the customer knew of the existence or extent of the term

• Where the terms excludes or restricts any relevant liability if some condition is not complied with

• Whether the goods were manufactured, processed or adapted to the special order of the customer

s11(4) When deciding if limitation clauses are reasonable the court should take into account

- The resources which D could expect to be available for meeting his or her liability, should it arise;

- How far it was open to D to cover himself by insurance against any successful claim.

George Mitchell v Finney Lock Seeds

Held: The clause was not reasonable because:

- the breach arose from the seller’s negligence

- the seller could have insured against crop failure at a modest cost

- in the past the seller had settled claims for more than the limitation sum, showing that he himself did not always consider the clause fair and reasonable.