Chapter 7 Exemption Clauses
1. Introduction to Exclusion and Limitation Clauses
Definition:
Exclusion clauses (or exemption clauses) are contractual terms which seek to exclude or limit liability for breach of contract, negligence, or other failures in contractual performance.
Common Context:
Often found in standard form contracts or online ‘terms and conditions’
Rarely read by consumers prior to agreement
Usually discovered only after a breach occurs, causing significant concern over enforceability
2. Common Law Control of Exclusion Clauses
The common law has developed two main controls over the enforceability of exclusion clauses:
Test | Purpose |
|---|---|
Incorporation | Determines whether the clause is legally part of the contract |
Construction | Interprets the meaning of the clause to assess what it covers |
3. Incorporation of Exclusion Clauses
To be enforceable, an exclusion clause must be incorporated into the contract using one of three recognised methods (see also Chapter 6):
3.1 Incorporation by Signature
If a party signs a contract that contains an exclusion clause, they are generally bound, even if they haven’t read the clause.
Exceptions:
If the clause is illegible or unclear
If it is particularly onerous and not reasonably drawn to the attention of the other party
If the document has been misrepresented
Case Example: L’Estrange v Graucob [1934]
A signed clause is binding unless vitiating factors are present.
3.2 Incorporation by Reasonable Notice
If the clause is not in a signed document, it must be shown that reasonable notice was given before or at the time of contracting.
Relevant Factors:
Nature of the Document: Must be of a type a reasonable person would expect to contain terms.
Timing: Notice must come before or at the time of contract formation — not afterwards (e.g. terms on back of a receipt are too late).
Position and Clarity: Clause must not be hidden in fine print; legibility and prominence are key.
Onerousness of Term: More onerous or unusual terms require more effort to highlight them.
The more extreme the clause, the higher the threshold for notice.
Judicial Quote:
“Some clauses would need to be printed in red ink with a red hand pointing to them before they can be held to be sufficient notice.”
Case Examples:
Thornton v Shoe Lane Parking [1971]: Ticket given after contract formation — clause not incorporated.
Olley v Marlborough Court Hotel [1949]: Notice in hotel room ineffective — too late.
3.3 Incorporation by Previous Consistent Course of Dealing
A clause may be impliedly incorporated if:
The parties have had regular, consistent dealings
The same terms, including exclusion clauses, were used on each occasion
Requirements:
Dealings must be frequent and consistent
The party relying on the term must show the other party was aware of the standard terms
Case Example: Spurling v Bradshaw [1956]
Clause upheld due to repeated dealings on same terms.
4. Construction (Interpretation) of Exclusion Clauses
Even if incorporated, the clause must be clearly drafted to cover the specific breach and loss that has occurred.
4.1 General Principle:
Courts interpret exclusion clauses narrowly. If the clause does not clearly cover the breach or type of loss, it will be held inapplicable.
4.2 The Contra Proferentem Rule
Where there is ambiguity in the wording of the clause, the courts will construe the clause against the party relying on it.
This applies especially to clauses seeking to limit or exclude liability for negligence.
The reasoning: It is only fair to hold the drafter strictly to the wording of the clause.
Classic Expression:
Ambiguous terms are to be construed contra proferentem — against the party seeking to rely on them.
4.3 Excluding Liability for Negligence
To validly exclude negligence, the clause must satisfy the Canada Steamship test (from Canada Steamship Lines v The King [1952]):
Step | Explanation |
|---|---|
1. Express words? | Does the clause expressly mention ‘negligence’ or synonyms? If yes → effective. |
2. Wording wide enough? | If not, is the wording wide enough to cover negligence? If yes → potentially effective. |
3. Alternative liability? | If another basis of liability exists, courts assume the clause does not exclude negligence unless clearly stated. |
4.4 Examples of Construction Issues
Clause | Facts | Result |
|---|---|---|
“Not responsible for damage caused by fire to customers’ cars on premises” | Car was damaged by fire caused by defendant’s negligence during repair | Clause did not apply — too vague to cover negligence |
Insurance policy excluded damage “caused by carrying a load in excess...” | Car was carrying six passengers (limit: five) | “Load” construed narrowly — clause did not apply |
5. Key Takeaways from Common Law Rules
Control Mechanism | Key Question | Legal Outcome |
|---|---|---|
Incorporation | Was the clause part of the contract? | If not properly incorporated → clause is not enforceable |
Construction | Does the clause clearly cover this breach and loss? | If unclear or ambiguous → construed against proferens |
Negligence Exclusion | Is the clause clearly worded to cover negligence? | Must satisfy Canada Steamship principles to be effective |
STATUTORY CONTROLS ON EXCLUSION CLAUSES – SUPER DETAILED NOTES
1. Overview
Statutory controls regulate the validity and enforceability of contractual clauses that seek to exclude or limit liability.
Statute | Scope of Application |
|---|---|
UCTA 1977 | Business-to-business contracts |
CRA 2015 | Business-to-consumer contracts |
2. UNFAIR CONTRACT TERMS ACT 1977 (UCTA 1977)
2.1 Purpose:
To control the effectiveness of exclusion or limitation clauses in contracts, especially those involving negotiating inequality or standard terms.
2.2 Application Scenarios
UCTA applies in specific contexts:
Type of Breach | Relevant UCTA Section | Statutory Effect |
|---|---|---|
Death or personal injury caused by negligence | s 2(1) | Exclusion clause is void – cannot exclude liability |
Other loss/damage caused by negligence | s 2(2) | Clause is valid only if it satisfies the reasonableness test |
Breach of statutory implied terms: description, quality, fitness for purpose (SGA 1979 ss 13, 14; SGSA 1982 ss 3, 4) | s 6 (SGA) / s 7 (SGSA) | Clause is valid only if reasonable |
Breach of express term in standard written terms | s 3 | Clause is valid only if reasonable (only applies to standard terms) |
2.3 Steps to Apply UCTA
Identify the type of breach (express term, implied term, negligence)
Determine whether UCTA applies
Does the clause relate to negligence, implied terms, or standard terms?
Is the clause in a business-to-business contract?
Apply relevant UCTA section (s 2, 3, 6, or 7)
Test whether the clause is valid, void, or subject to the reasonableness test
3. The Reasonableness Test (UCTA s 11)
3.1 General Rule:
To be enforceable under UCTA, the clause must be fair and reasonable at the time the contract was made.To satisfy the reasonableness test the clause must have been a fair and reasonable one to be included in the contract. And we judge that at the time of the contract by taking into account all the circumstances including what the parties knew or ought to have known at that point in time.
3.2 Legal Standard:
“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 when the contract was made.”
(UCTA 1977, s 11(1))
3.3 Relevant Factors (Schedule 2 UCTA 1977)
Factor | Description |
|---|---|
Relative bargaining strength of the parties | Did one party impose the clause on the other due to a stronger position? |
Inducements | Was anything offered in return for accepting the clause? |
Knowledge of the term | Did the affected party know or ought to have known about the clause? |
Alternative sources | Could the buyer have obtained the goods/services elsewhere without the clause? |
Practical consequences | What are the practical outcomes of enforcing or not enforcing the clause? |
Case Example: Watford Electronics Ltd v Sanderson CFL Ltd [2001]
Two experienced businesses negotiated an exclusion clause. Held: clause was reasonable given equality of bargaining power.
3.4 Practical Outcomes Under UCTA
UCTA Section | Clause Type | Legal Status |
|---|---|---|
s 2(1) | Excludes liability for death/personal injury from negligence | Automatically void |
s 2(2) | Excludes liability for other negligence-caused loss | Valid only if reasonable |
s 3 | Excludes liability for breach of express terms in standard terms | Valid only if reasonable |
s 6 / s 7 | Excludes statutory implied terms (goods description, quality, fitness) | Valid only if reasonable |
SALES CONTRACTS – Section 31 CRA 2015
What it prohibits:
A term in a sales contract is not binding on the consumer if it would:
Prohibited Action Under s 31 | Explanation |
|---|---|
(a) Exclude or restrict a right/remedy under ss 9–11 | These cover satisfactory quality, fitness for purpose, and goods as described |
(b) Make such a right/remedy subject to restrictive or onerous conditions | E.g. requiring notice within 48 hours, or payment of a fee to initiate a return |
(c) Allow the trader to disadvantage the consumer for pursuing the right | E.g. cancelling warranties or services if the consumer makes a claim |
(d) Exclude or restrict procedural rules | E.g. preventing the consumer from using small claims court |
Covered Sections:
Section 9: Goods must be of satisfactory quality
Section 10: Goods must be fit for particular purpose (express or implied)
Section 11: Goods must be as described
Consequence:
These rights are absolute. Any attempt to contractually override them is automatically void.
4. SERVICE CONTRACTS – Section 57 CRA 2015
Similar protection exists for services under s 57, particularly covering:
Prohibited Action Under s 57 | Explanation |
|---|---|
(a) Exclude or restrict liability for breach of s 49 | Duty to perform service with reasonable care and skill |
(b) Redefine duty to avoid liability in the first place | E.g. a clause saying the customer is responsible for protecting furniture during painting |
(c) Restrict remedies for breach of ss 49–52 | Must not block access to refund, repeat performance, or price reduction |
Covered Sections:
Section 49: Implied term to carry out services with reasonable care and skill
Section 51: Implied term for reasonable price (if not agreed)
Section 52: Implied term for performance within a reasonable time (if not agreed)
Case Illustration:
A domestic decorator includes a clause saying the homeowner is responsible for protecting carpets and furniture.
This redefines the implied duty under s 49.
Under s 57 CRA 2015, this clause would be unenforceable.
5. Enforcement and Practical Effect
If a trader attempts to sidestep CRA 2015 rights, the relevant term is not binding on the consumer.
The statutory rights remain enforceable regardless of what the contract says.
6. Interaction with Common Law Rules
CRA 2015 adds to, rather than replaces, the common law rules:
Incorporation: Is the clause part of the contract?
Construction: Does the clause clearly cover the breach/loss?
CRA now steps in even if incorporation and construction are satisfied.
EXEMPTION CLAUSES & THIRD PARTIES
Contract Law – Privity and Statutory Exception
1. General Rule: The Doctrine of Privity
Under the common law rule of privity, a third party cannot benefit from or be bound by a contract to which they are not a party. This includes exemption clauses.
Key principle:
Only the parties to the contract can enforce, or be protected by, its terms – including exclusion or limitation clauses.
2. Common Law Illustration: Adler v Dickson [1955] 1 QB 158
📌 Facts:
Mrs Adler was injured while boarding a ship.
Her ticket contract was with the shipping company, which included an exclusion clause.
She sued the master and boatswain personally in negligence.
📌 Held:
The exemption clause did not protect the employees.
They were not parties to the contract, and therefore could not rely on its terms.
Principle: The privity rule prevents non-parties (e.g. employees) from invoking a contractual exemption clause, even if their employer could.
breach of cont
3. Statutory Exception: Contracts (Rights of Third Parties) Act 1999
Key Exception to the Common Law:
Under C(RTP)A 1999, a third party may rely on a contract term (including an exemption clause) if:
They are expressly named, or
They fall within a class of persons expressly identified in the contract as being intended to benefit from the clause.
Conditions for enforcement (s 1):
The contract must expressly provide that the third party may enforce the term, or
The term purports to confer a benefit on the third party and they are identified by name, class or description.
Application to Exemption Clauses:
An employee of a company may rely on a clause in the company’s contract if the clause extends to employees as a class (e.g. “employees” or “agents”).
Contrast with Adler: Had the clause in Adler v Dickson mentioned employees explicitly or included a class term (e.g. “servants”), the employees could have been protected under the 1999 Act.
4. Illustrative Example: Jordan v Car Care Ltd
📄 Facts:
Jordan contracts with Car Care Ltd to service his taxi.
Due to negligence by George, an employee, the brakes fail, leading to:
Damage to property (taxi)
Personal injury
📄 Clauses in the contract:
8.1 Neither Car Care Ltd nor any of its employees will be liable for loss or damage to property howsoever caused (including negligence).
8.2 Neither Car Care Ltd nor any of its employees will be liable for personal injury, unless caused by negligence.
📍 Legal Analysis
Legal Issue | Explanation |
|---|---|
Jordan sues Car Care Ltd for damage | Valid breach of s 13 SGSA 1982 (failure to use reasonable care and skill) |
Clause 8.1 valid? | If incorporated and reasonable (UCTA s 2(2)), it may protect Car Care Ltd from liability for property damage |
Clause 8.2 valid? | Cannot exclude liability for personal injury due to negligence – void under UCTA 1977, s 2(1) |
Jordan sues George (employee) | No contract exists → cannot sue in contract, but can sue in tort of negligence |
Can George rely on clause 8.1? | Yes, under C(RTP)A 1999 – George is an employee, a member of the class protected by the clause |
Clause 8.2 for George? | If it attempted to exclude liability for personal injury due to negligence, it would still be void under UCTA 1977, s 2(1) |
5. Summary Table
Party | Cause of Action | Can Rely on Clause? | Notes |
|---|---|---|---|
Car Care Ltd | Breach of s 13 SGSA 1982 | Clause 8.1 – Yes (if reasonable); Clause 8.2 – No | s 2(1) UCTA prohibits excluding liability for personal injury due to negligence |
George (employee) | Tort of negligence | Clause 8.1 – Yes (via C(RTP)A 1999); Clause 8.2 – No | Privity exception applies, but UCTA still governs reasonableness & validity |
6. Key Statutes to Cross-Reference
UCTA 1977
s 2(1): Cannot exclude liability for personal injury or death caused by negligence
s 2(2): Other negligence exclusions must pass reasonableness test
SGSA 1982
s 13: Implied term to exercise reasonable care and skill in providing services
C(RTP)A 1999
s 1: Third parties can enforce a term if named or fall within a class benefiting from the term
