Exemption clauses

Question 1

What is an exclusion clause?

Answer 1

clauses in contract law that deems a party not liable for a particular breach.

Or in other words:
exclude all liability for a breach of contract or other fault of one party.

Liability is excluded completely.

e.g. if a company accepts no liability for late delivery.

Question 2

What is a limitation clause?

Answer 2

Only limits the liability of one party if they are found to be in a breach or at fault.

limitation clauses cap the amount of damages one will be able to claim. E.g. Liability for late completion of the building works is limited to £5000

Question 3

Why is statute strict on rules of limitation and exclusion clauses?

Answer 3

If the clause is unreasonable for the damage that has been caused then it’s not fair on the plaintiff and would be disadvantageous.

Question 4

What is an advantage for businesses using such clauses?

Answer 4

Reduces your insurance.

minimises risk- you can prepare in advance

protection.

Question 5

What 3 things in common law must be hurdled for a party to be able to rely on an exemption clause?

Answer 5

Incorporation

Construction

Legislation

Question 6

Thompson v L M & S Railway (1930)

Answer 6

• there must be reasonable notice

Question 7

Chapelton v Barry

Answer 7

Ticket for the hire of a deckchair was not contractual in nature and there was no reasonable notice of the term on the back. It was not incorporated.

If you don’t have any notice of a term/ clause before getting into a contract then it can’t be incorporated.

Question 8

What is the general presumption for signed contracts?

Answer 8

As long as they’ve seen it before and it is signed, it is incorporated, regardless of if they have read or understood it.

Can’t go back on a signing.

Question 9

L’Estrange v Graucob (1934)

Answer 9

If a document is signed then it is bound to the details.

Scrutton LJ stated: In cases in which the contract is contained in a railway ticket or other unsigned document, it is necessary to prove that an alleged party was aware, or ought to have been aware, of its terms and conditions.

These cases have no application when the document has been signed.

When a document containing contractual terms is signed, then, in the absence of fraud, or, I will add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not.

Question 10

What is an exception to a signed contract?

Answer 10

If the contents of the clause is vocally said incorrectly or misleadingly then it could be argued that there is misrepresentation and then the other party would not be bound to this clause.

Curtis v Chemical Cleaning Company (1951)

Question 11

Curtis v Chemical Cleaning Company (1951)

Question 12

Olley v Marlborough Court (1949)

Answer 12

A couple check into a hotel and there was notice on inside of their room door they didn’t see beforehand.

As they had entered the contract, they had no choice but to obey to their exemption clauses which is not right.

it was ruled that it was not incorporated as they had no reasonable notice. The issue was the timing.

Question 13

Why would a clause in small print in a notice displayed at the entrance of a nightclub be an issue if it is incorporated or not?

Answer 13

The timing is fine because it is there before you buy your ticket and enter.

But if the term is important, it is not reasonable notice as it’s probably in dark spot, people are likely to be drunk and because the note is in small print this would be classes as illegible so it would not be incorporated.

Question 14

Why does it matter if the customer is existing or new?

Answer 14

Scerling and Bradshaw: if there is a consistent previous course of dealings between the parties then it may be argued successfully that it is incorporated.

New customers wouldn’t have this advantage so they are more likely to be successful in arguing the term was not incorporated. The only way you could argue against this is if it could be an implied term of that particular trade/industry.

Question 15

Spurling and Bradshaw [1956]

Answer 15

The parties had been dealing regularly over a long period of time and each time there was a delivery note of an exclusion clause after the contract was made.

The term was incorporated because there was regular notice in the delivery note and lots of interaction. The buyer couldn’t argue they didn’t know about the course

Lord Denning: Some exclusion clauses I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient.

Question 16

British Trade Myre and Ipswich Plant

Answer 16

If a clause is common of a clause in a typical industry contract then it is likely to be incorporated based on implied terms.

Question 17

What is the Contra Proferentem Rule?

Answer 17

Any ambiguity or doubt contained in an exemption clause will be resolved against the party trying to rely on the clause.

Houghton v Trafalgar Insurance Co Ltd (1954)

Question 18

Houghton v Trafalgar Insurance Co Ltd (1954)

Answer 18

A car insurance policy excluded liability if the car insured was carrying an excessive load during an accident.

6 people in a car got in an accident when the car only had 5 seats and the car insurance tried to deny their claim.

But the word load was too ambiguous because the word load could’ve referred to ppl, luggage, literally anything. So due to the contra proferentem rule meant this was not enforceable and the people were able to claim.

Make sure the wording is clearer.

Question 19

What 3 methods can be found to prove the validity of a clause under incorporation?

Answer 19

• signature (was it signed?)
• was there reasonable notice?
• had there been previous dealings between parties?

Question 20

Reasonable notice:

Answer 20

In the absence of a signature, an exemption clause can be incorporated if the other party has reasonable notice of its existence and effect.

GENERAL RULE: What is reasonable as regards to the ordinary adult individual capable of reading English?
Has enough been done to bring it to the other party’s attention.

Question 21

Parker v South Eastern Railway (1877):

Answer 21

Mellish LJ : if the person receiving the ticket did not see or know that there was any writing on the ticket, he is not bound by the conditions; that if he knew there was writing, and knew or believed that the writing contained conditions, then he is bound by the conditions; that if he knew there was writing on the ticket, but did not know or believe that the writing contained conditions, nevertheless he would be bound, if the delivering of the ticket to him in such a manner that he could see there was writing upon it, was, in the opinion of the jury, reasonable notice that the writing contained conditions.

Question 22

Chapelton v Barry UDC (1940:CA)

Answer 22

Whether the document is of a contractual nature

Question 23

Other factors that show a clause is incorporated:

Answer 23

Whether greater notice is required due to the unusual/ onerous (involving heavy obligations/ gone through a lot of trouble to do it) nature of the clause.

Question 24

Thornton v Shoe Lane Parking (1971)

Answer 24

Red hand rule:

If a clause is particularly onerous or unusual, then more should be done to bring it to the attention of the other party.

Question 25

Interfoto Picture Library v Stiletto Visual Programmes (1989)

Answer 25

Stiletto Visual Programmes (SVP) ordered 47 photographic transparencies from Interfoto Picture Library (IPL). On the delivery note was a clause stating that transparencies should be returned within 14 days of delivery. If they were not so returned, a holding fee of £5 per transparency per day would be charged. SVP returned the transparencies four weeks later and received a bill for over £3,700. SVP refused to pay and IPL successfully received judgement for payment. SVP appealed. The clause had not been successfully incorporated into the contract. Where a clause is particularly onerous, as in this case, and the fees are exorbitant at ten times the level of other photographic libraries, the party seeking to rely on the clause must show they have taken reasonable steps to bring the clause to the other party’s attention. IPL had failed to do this and they could, therefore, only recover fees assessed on a quantum meruit basis.

Question 26

Previous course of dealings

Answer 26

If parties have dealt regularly and consistently (namely on the same Ts&Cs) with each other over a sufficient period of time then a term may be incorporated in this way. Spurling v Bradshaw (1956) Kendall (Henry) & Sons v Lillico (William) & Sons Ltd [1969] The course of dealing must be both consistent and regular: McCutcheon v McBrayne (1964) Hollier v Rambler Motors (1972)

Question 27

Kendall (Henry) & Sons v Lillico (William) & Sons Ltd [1969] (hint: game farmers)

Answer 27

The claimants were game farmers. They bought food for their birds from the defendants. However, when the chicks ate the food, many became sick and died. This was due to a toxic mould substance in the groundnuts from which the food was made. The defendants had bought the product from two third-parties. The defendant’s contract with the third parties was made orally. However, the third-parties alleged that a clause stating that the buyer took responsibility for any ‘latent defects’ in the product was incorporated into the contract by a consistent course of dealing. In their previous dealings with the third-parties, the defendants had been given a note containing this term. However, they never read it. The House of Lords held that: The third parties were in breach of the statutory terms. The latent defects clause was incorporated into the contract. The latent defects clause was not worded clearly enough to exclude liability for breach of the statutory terms. It should be construed as only excluding liability for those defects which did not prevent compliance with the statutory terms.

Question 28

McCutcheon v McBrayne (1964)

Answer 28

McCutheon delivered his car to the defendant shipping company for carriage from the Hebrides to the mainland. The car was destroyed when the ship sank because of the company’s negligence. The company’s usual practice was to issue a risk note to customers exempting them from liability for losses resulting from their negligence. McCutheon had signed such notes on previous occasions but had never read the terms. On this occasion, no such risk note was supplied, and McCutheon sought to recover the value of his car.

Question 29

Hollier v Rambler Motors (1972)

Answer 29

Hollier had his car repaired by the defendant garage three or four times over a period of five years. On at least two of these occasions he had signed a form which stated the garage were exempted from liability for damage caused by fire on their premises. Hollier had not read the form. On this occasion there was an oral agreement for the repairs to be conducted, and Hollier had not signed a form. His car was damaged by fire and Hollier claimed in negligence.

Question 30

In summary, what does the CRA 2015 offer?

Answer 30

- Applys when a business provides service or goods to a consumer - Offers comprehensive protection in the context of a contract under which a trader is supplying goods services or digital content to a consumer - Prohibits certain types of clauses entirely - Controls the use of other types of clauses by the requirement as to fairness

Question 31

Unfair Contract Terms Act 1977: purpose?

Answer 31

- Less comprehensive protection in case of a business to business contract - This is because businesses are more likely to have an understanding an expertise - Prohibits certain types of clauses Also fairness

Question 32

Under CRA, what terms are not allowed to be made or challenged?

Answer 32

A term cannot be challenged unless it is not transparent and clear. Some terms are not allowed to be made- for example you are not allow exclude liability for death or personal injury caused by negligence. A clause that excludes this is void and prohibited,

Question 33

When goods are sold under a consumer contract- part 1 CRA implies minimum standards of a product. What can this include?

Answer 33

- satisfactory quality - Fit with the description - Purpose - Title

Question 34

What does S.31 of CRA act state?

Answer 34

Prohibits any clause that removes or limits a consumers rights to those minimum standards or consumer remedies Part 1 also sets out a framework of specialist remedies if these are breached.

Question 35

What does S.47 CRA 2015 do?

Answer 35

prohibits an exemption clause in relation to digital content.

Question 36

S.57 CRA - relating to services

Answer 36

the person must provide a service with reas skill, price and time. This prohibits an exemption clause limiting or restricting this.

Question 37

What is the Grey List?

Answer 37

20 terms in Sch2 that may be unfair in a clause. This list is not designed to be exhaustive. A term not on the grey list must still satisfy the requirement of fairness so even if it isn't on the list, it doesn't mean it's not fair. e.g. A term, requiring a consumer who fails to fulfil his obligations under the contract to pay a highly disproportionate sum is to be compensated.

Question 38

Is there a burden of proof on questions of fairness?

Answer 38

No. But in practice, businesses tend to be the side that has to prove it was fair on their customers, although this isn't explicitly said.

Question 39

s. 62(4) CRA 2015:

Answer 39

- To encompass notions of "good faith" and a "significant imbalance" between the parties' rights to the disadvantage of the consumer. - A court must take into account the circumstances at the time the term was agreed

Question 40

Is an unfair term binding on the consumer?

Answer 40

typically no. The court must consider the issue even if it is not raised by the parties- s.71 The assessment is made based on the time when the contract was signed , not when the breach occurred and not in hindsight.