6. Exemption Clauses

what is an exemption clause

an express term of a contract that seeks to exclude or limit liability

which case does scope of ec comes from

Thornton v Shoe Lane Parking 1970

3 elements to scope of ec

• exclude or limit liability

• shows different types of liability that can be excluded

• can show the type of loss which can be excluded

thornton v shoe lane parking

ec was after contract was made - ec after car park barriers

3 main sections for ec

A party wishing to rely on an exclusion clause must prove that:

1. It has been validly incorporated into the contract.

2. The clause is effective to exempt liability for the loss suffered.

3. The clause valid under UCTA 1977 or the CRA 2015.

basic structure to ec pq (11)

1. identify breach

2. incorporation

   1. signature

   2. notice

   3. previous dealings

3. construction

   1. contra proferentem

   2. negligence

4. statutory controls

   1. UCTA 1977

   2. CRA 2015

1. breach (2)

first the courts must identify what is the liability of the party seeking to rely on the exemption clause

What terms have been breached and is it an express or implied term

2. incorporation of terms intro and main point

• This asks whether the EC has been validly incorporated into the contract as an express term

• this must be done before or at the time of the contract. Held in [Olley v Malborough Court Hotel 1949]

olley v malborough court hotel 1949

ec in hotel room after contract was made at check in desk3

3 ways of incorporating terms

signature, notice, and previous dealings.

incorporation by signature (4) +2 cases 1 citiation

• The signature rule is where a party is in general bound by his signature whether they have read the terms or not.

• it is wholly immaterial whether he has read the document or not [lestrange v f graucob 1[934]

• bound by signature if new terms added [peekay intermark v australia and new zealand banking group]

• signature also includes electronic signatures under s7 Electronic Communications Act 2000.

l’estrange v f graucob 1934

bound by signature - didn’t read document

peekay intermark v australia and new zealand banking group 2006

bound where C signed an agreement that had been discussed prior on a phone call but then D added terms without telling C

exceptions to the signature rule names

• non est factum

• misrepresentation

• canadian approach

non est factum (2 + case)

it is not my deed

someone lacks capacity to sign - not bound

[throroughgoods case 1584]

misrepresentation (1 +case)

is misrepresentation - not bound

[Curtis v Chemical Cleaning and Dyeing 1951]

canadian approach

only bound if the other party can prove C was aware of the term

[tilden rent a car co v clendenning 1978]

throroughgoods case 1584

D was illiterate and the document was falsely read to him - signature not binding

curtis v chemical cleaning and dyeing 1951

c did not know the extent of damage she was signing ec for - misrep so not binding

3 sections of incorporation by notice

1. Incorporation by notice must be done before or at the time of contracting

2. The terms must be contained or referred to in a document intended to have contractual effect or to contain contractual term.

3. Reasonable notice and opportunity must be given for OE to read the EC.

1. before or at the time of contracting +2 cases

• incorporation by notice must be done before or at the time of contracting - held in [Olley v Marlborough Court Hotel]

• illustrated in [Thornton v Shoe Lane Parking Ltd 1970]

2. must be contained in document (3+ 2 cases)

• The terms must be contained or referred to in a document intended to have contractual effect or to contain contractual term.

• a receipt is not incorporated [chapleton v barry urban district council 1940]

• timesheet is not incorporated [grogan v robin meredish plant hire 1996]

chapelton v barry urban district council 1940

deck chair hire receipt had ec on - not incorporated unlike a train ticket

grogan v robin meredith plant hire 1996

additional terms on timesheet - sheet more like admin doc not incorp

3. reasonable notice (5 + 3 cases)

• there must be reasonable notice and opportunity must be given to read the EC

• This is a question whether objectively reasonable notice of the existence of the terms was given to the offeree before accepting the offer

• delivery notice not reasonable [interfoto picture library v stilleto visual programmes 1987]

• ‘see back’ was reasonable [parker v south eastern railway 1877]

• reference to website t&cs are reasonable [impala warehousing and logistics co v wanxing resources 2015]

interfoto picture library v stilleto visual programmes 1987

delivery notice said £5 a day holding fee, stiletoo picked up two weeks later - not not reasonable

parker v south eastern railway 1877

cloakroom ticket with ‘see back’ for ec, handbag got stolen over £10 value- reasonable notice

impala warehousing and logistics co v wanxing resources 2015

all disputes were subject to terms on company website - incorp

what is red hand rule +2 cases with judges

• the more unreasonable a clause is, the greater the notice which must be given of it - denning lj in [J spurling v bradshaw 1965]

• if one condition in a set of printed conditions is particularly onerous or unusual, the party seeking to enforce it must show that that particular condition was fairly brought to the attention of the other party - dillion LJ in [interfoto]

3 other points of red hand rule with cases

• common arbitration clause not so onerous [kaye v nu skin 2012]

• industry norm not onerous [ocean chemical transport v exnor craggs 2000]

• normal x (mirror group rules) terms apply not onerous [o’brien v mgn 2001]

J spurling v bradshaw 1965

red hand rule definition

kaye v nu skin 2012

arbitration clause in english case was common despite needing to be carried out in us

ocean chemical transport v exnor craggs 2000

6 month time bar for breach of contract was industry norm

o brien v mgn 2001

c won on newpaper scratchcard but there was only meant to be 2 winner but there was an error and 1500 winners

3. incorporation by previous dealings (4 + 3 cases)

• If the parties deal with each other regularly on standard terms and conditions, the terms may be incorporated based on previous dealings not by notice of a specific occasion.

• consistent use of terms - incorp [mccutcheon v david mac brayne 1964

• regular course of dealings over time - incorp [hollier v rambler motos 1971]

• common basis by parties - incorp [british crane hire corp v ipswich plant hire 1971]

mccutcheon v david mac brayne 1964

sometimes signed ec for ferry others times not - couldn’t rely on course of dealings

hollier v rambler motos 197

ec signed ec for fire damage to car 2/3 times in five years not sufficient, ec not valid

british crane hire corp v ipswich plant hire 1971]

printed conditions were common in plant hire business - course of dealings valid

3. construction intro and two main sections

Construction is the interpretation of exemption clauses. It is necessary to ask whether the clause covers the type of liability and the loss in question. This is a question of contractual interpretation and construction.

a) contra proferentem rule

b) liability for negligence

contra proferentem rule +case

The ‘contra proferentem’ rule: in the event of ambiguity around the meaning of the clause, the ambiguity will be resolved against the party seeking to rely on the exemption clause [houghton v trafalgar insurance co 1954]

liability for negligence (2 +case judge)

• clear wording must be used

• If the wording could be applied to either negligence or non-negligent liability, and there is concurrent liability in contract and tort, then the clause will generally be confined to the non-negligent source of liability

  [canada steamship lines v r 1952] - lord morton

houghton v trafalgar insurance co 1954

A car insurance policy did not cover damage while carrying excess load- six passengers not five. CA found ‘load’ ambiguous, favoring interpretation against insurers regarding weight limits, resulting in valid insurance

canada steamship lines v r 1952

ec for damage to goods stored in a shed but fire occured outside shed destroying it - ec ambiguous as only ref to goods in shed

what do ucta 1977 and cra 2015 apply to

unfair contract terms act 1977 - b2b

consumer rights act 2015 - b2c

what do sga 1979 and sgsa 1982 apply to

sale of goods act 1979 - sale of goods

supply of goods and services act 1982 - transfer of goods, hire and supply of services

what are the main provisions of ucta 1977 with sections

s2 - negligence

s6/7 - defective products

s3 - other breach of contract

definition of b2b contracts with section

Under s1(3) UCTA applies to business liability which is defined as ‘things done or to be done in the course of business and liability arising from occupying business premises

liability for negligence (2)

s2(1) UCTA: death or personal injury cannot be excluded or limited

s2(2) UCTA: other loss and damage may be excluded or restricted only if the term satisfies the reasonableness test

defective products (3)

s6(1) UCTA 1977: implied term about title of goods (s12 SGA 1979) cannot be excluded or limited

s6(1)(a) UCTA 1977: implied terms about satisfactory quality, fitness for purpose or sale by description (s13,14,15 SGA 1979) may be excluded or limited if the term satisfies the reasonableness test.

s7(3)(a) UCTA 1977: liability for breach of s2 SGSA 1982 relating to transfer of goods in a work and materials contract cannot be exempted.

breach of contract (1)

s3 UCTA 1977: if contract is non-negotiated (standard form) then liability may be excluded or restricted only if the term satisfies the reasonableness test.

5 sections of reasonable test + citation

schedule 2 ucta

a. strength of bargaining positions of the parties

b. whether the customer received an inducement

c. whether the customer knew or ought reasonable to have known of the existence and extent of the term

d. whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable

e. whether the goods were adapted to the special order of the customer

reasonable test

s11 UCTA 1977: the requirement of reasonableness is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties at the time when the contract was made.

s11(4) ucta

s11(4) UCTA 1977: the resources which he could expect to be available to him for the purpose of meeting the liability should arise and how far it was open to cover himself by insurance.

4 cases on reasonableness test with rules

• full amount unreasonable due to minor software fault [st albans city and dc v internaitonal computer 1996]

• no ec to prevent fundamental breach [photo production v securicor transport 1980]

• court can’t allocated risks in b2b [watford electronic v sanderson cfl 2000]

• ec common clause but general practice to not rely on it [george mitchell v finney lock seeds 1983]

st albans city and dc v internaitonal computer 1996

software overestimated number of playing in area council had to pay 685k but ec limited to 100k - ec unreasonable as matter arose out of minor fault in software

photo production v securicor transport 1980

the contract required Securicor to make patrol visits and there was an EC for acts of its employees. One night Securicor employee started a fire. Held that the D was not liable as there is no rule prevent exclusion of a fundamental breach.

watford electronic v sanderson cfl 2000

contract to transfer goods ec for whole contract agreed without representaiton - ec unreasonable as not for court to do allocation of risk in b2b

george mitchell v finney lock seeks

seeds didnt match description crop failed - ec to liable to cost of seef - ec common trade but comon to not rely on it to ec unreasonable

comsumer and trader definition

s2(2) CRA 2015: a trader means a person acting for purposes relating to that person’s trade, business, craft or profession, whether acting personally or through another person acting in the trader’s name or on the trader’s behalf.

S2(3) CRA 2015: a consumer means an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession.

are goods and service contract ec binding? with sections

s31 CRA 2015: attempts to exclude or limit liability in goods contracts are not binding (replacing s6/7 UCTA)

s57 CRA 2015: attempts to exclude liability arising in service contracts are not binding. It is possible to limit liability but cannot be less than the contract price and is subject to the fairness test.

unfair terms definition

s62(4) CRA 2015: unfair terms definition: ‘a term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.’

where does unfairness test come from +2 points

Lord Bingham in DGFT v First National Bank pls [2001]

• contrary to good faith

• causes significant imbalance

can you exclude death or pi?

Under s65 (1) CRA 2015: A trader cannot by a term of a consumer contract or by a consumer notice exclude or restrict liability for death or personal injury resulting from negligence.

examples of unfair terms under schedule 2 cra 2015 (2)

Schedule 2 (6) - A term which has the object or effect of requiring a consumer who fails to fulfil his obligations under the contract to pay a disproportionately high sum in compensation.

Schedule 2 (11) - A term which has the object or effect of enabling the trader to alter the terms of the contract unilaterally without a valid reason which is specified in the contract.

s64 cra 2015 +case example

s64 CRA 2015: Terms that define the main subject matter of the contract or price payable are excluded from the assessment of fairness.

[office of fair trading v abbey naitonla pls and others 2006]

DGFT v first national bank pls 2001

clause to allow standard interest rates instead of lower statutory rate - fair under s62 cra 2015 as there was nothing unbalanced or detrimental to consumer

office of fair trading v abbey national pls and others 2006

bank charged for unplanned overdrafts. UKSC held the bank charges were a ‘core term’ of the contract and were not capable of assessment for fairness.