Exemption clauses

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Exemption clauses and unfair contract terms

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Question Answer
Exemption clauses Express terms which attempts to exclude or restrict one party’s liability for loss which he would otherwise owe to the other.
Types of exemption clauses - Exclusion clauses: exclude all liability; - Limitation clauses: provide a financial ceiling beyond which the defendant is not liable.
When can they be relied upon? (1) they are part of the agreement (Incorporation) - common law (2) the wording covers what has happened (Construction) - common law (3) the clause itself is not unlawful (statute - UCTA, CRA 2015)
Incorporation - Signature - signed contractual document - Notice - reasonable notice of the existence of the clause given in a contractual document before or at the time of contracting. - Course of Dealing - consistent and regular course of dealing including the clause between these parties
Signature (incorporation) - bound by signed contractual terms; - even if not read (L’Estrange v Graucob - the vending machine purchased did not work, the signed order form excluded all liability); - but not as a result of fraud or misrepresentation (Curtis v Chemical Cleaning - dry cleaning dress, C was told that the form she was signing excluded liability for the damage of the beads only, while in fact it was total exclusion )
Notice (incorporation) - Contained in a contractual document (Chapelton v Barry U.D.C. - the clause was on a ticket obtained after hiring deck chairs, not contract, just a receipt) - Timing - attention must be drawn before or at the time of the agreement (Olley v Marlborough Court Hotel - notice in the hotel room, contract made at reception; Thornton v Shoe Lane Parking - the contract is when you put the money in the a parking machine, ticket with the clause given after)
Notice - reasonable (incorporation) - Have reasonable steps been taken to bring the clause to the attention of a reasonable person, but no need to prove that they have read it (Thompson v LMS Railway - being illiterate and not able to read the notice, not an excuse) - If a clause is particularly onerous then more steps are required to bring it to the notice of a reasonable person (Interfoto Picture Library Ltd v Stilleto)
Course of dealing (incorporation) - Usually found in B2B relations; - Consistent and regular course of dealing; - Tends to be used where signature was the norm, but not on this occasion; (Spurling v Bradshaw - warehouse, always signing an invoice with the clause in it; McCutcheon v MacBrayn - no consistency on signing the form when using the ferry; Hollier v Rambler Motors - using the garage 3-4 times over 5 years not regular enough; British Crane Hire v Ipswich Plant Hire – standard in the industry exemption clause (deemed knowledge))
Construction (exclusion clauses common law) - ambiguity of wording to be read against the party seeking to rely on it 'contra proferentem' (Houghton v Trafalgar Insurance Co Ltd) - negligence - the presumption is that liability exempted is ‘strict’ contractual liability only, unless it specifically mentions negligence, or the wording is wide enough to include it - traditionally an objective test derived from Canada Stemaships, now mainly covered by UCTA 1977 and CRA 2015
Construction (limitation clauses common law) Limitation clauses not to be construed so strictly (Aisla Craig Fishing v Malvern Fishing). Focus on: - Relationship to other terms; - What risks are being taken and assumed; - What payment is being made; - Availability of insurance.
Construction (the modern approach) BCCI v Ali, Lord Hoffman: - Artificial rules for construction of exemption clauses should be avoided and test based on the ‘reasonable speaker of language’ interpreting language in ‘ordinary life’ - confirmed in Keele University v Price Waterhouse
Unfair Contract's Terms Act 1977 (UCTA 1977) - Applies only to B2B contracts s 1(3); - It does not replace common law regulations; - Depending on the liability UCTA renders the clause either totally unenforceable or only enforceable if it can be shown to be reasonable (s 11 reasonableness requirement).
Exempting liability for negligence (UCTA 1977) - s 1(1) - definition - breach of contractual obligations which impose a duty to exercise reasonable care and skill and breach of duty of care in tort. - s 2(1) death/PI = void - s 2(2) other loss/damage = reasonable test (Smith v Eric Bush - negligent valuation -> financial loss -> valuer can rely on the disclaimer only if he can show it was reasonable)
Exempting liability for breach of contract (UCTA 1977) - s 3 (1) dealing on other’s standard terms = reasonable test - s 6 (1)(a) - SGA 1979 ss 13 - 15 (implied terms as to conformity with description, satisfactory quality, fitness for purpose, or correspondence with sample) = reasonable test
Reasonable test (UCTA 1977) s 11(1) - A balancing test seeking if the clause 'fair and reasonable' when judged at the time the contract is made and on the basis of circumstances which were, or ought reasonably to have bee, known to or in the contemplation of the parties.
Reasonableness (the courts approach) - Bargaining power Sch2(a) - if equal then they should know what they are doing (no intervention by the courts - Photo Production Ltd v Securicor Transport Ltd) - Availability of alternative advice Sch2(b) - Limited breaching party resources - s 11(4) - Insurance - s 11 (4) Photo Production Ltd v Securicor Transport Ltd - Practical consequences - standard operating clause within an industry (Crane Hire...) - Awareness of consequences - Bespoke goods manufactured - s 2(e)
CRA 2015 - s 31(1) a trader cannot exclude liability for quality/fitness etc. SGA 1979 ss 13 - 15; - s 57(1) - liability to perform services with reasonable care and skill cannot be excluded; - s 57(3) - A limitation clause which limits liability below the contract price is void. However if it limits to the contract price (or more) then it may be valid s 62 is satisfied (fairness); - s 62(4) - unfair if contrary to the requirement of good faith, it causes a significant imbalance in the parties; - s 64 - excluded from the assessment of fairnes are EC related to the main subject matter of the contract and the appropriateness of the price; - s 65(1) - death/PI = void