Transcript Slide 1

Exclusion or Exemption clauses
• An exclusion clause is the same as an exemption
clause . Such a clause is an Express Term of the
contract. The side putting it into the contract seeks
to exclude himself from liability should the things
specified in the exclusion clause transpire.
• A limitation clause is where one party seeks to
limit his liability to a stated amount of money.
• The rules we discuss for exclusion clauses apply
similarly to limitation clauses.
Regulation of exclusion
clauses
Both the COMMON LAW (the judges in court)
and PARLIAMENT (Acts of Parliament) have
taken a REGULATORY ROLE with regards to
the use of exclusion clauses by businesses –
especially when it is a business dealing with a
consumer and sometimes between
businesses, though for the latter less often.
Statutory regulation was necessary due to the
rise of the ‘consumer’ and the use of
Standard Form Contracts that tend to
disadvantage the consumer.
What sort of term is an exclusion
clause?
Judges see exclusion clauses as a ‘Defence’ that
has been built into the contract to protect the
person using it from claims of:
i. Breach of contract, or
ii. Negligence.
In the light of this, judges have taken a ‘restrictive’
approach when interpreting exclusion clauses, in
the first instance to protect a weaker party from
exploitation by a stronger party.
The party wishing to rely on an
exclusion clause has to prove 3
things:
i. that the exclusion clause (the term) was actually
incorporated into the contract in the first place; and
ii. that the exclusion clause actually covers the
liability (loss/damage) in question in the case; and
iii.that the exclusion clause is not made ineffective
by virtue of either the Unfair Contracts Terms Act
1977 or the Unfair Terms in Consumer Contracts
Regulations 1999
Was the exclusion clause
incorporated into the contract?
Firstly, was the document a contractual document?
Secondly, did the consumer ‘sign’ the contract?
Thirdly, for unsigned documents, consider the timing
of the notice given to the consumer on tickets and
other notices.
And finally, one has to remember that the full contents
of an exclusion clause may not actually be
incorporated into the contract if the person signing a
document was misled by a misrepresentation as to the
contents of the document being signed.
If incorporated, does it actually
cover the loss or damage in
question?
Whether or not it does is down to how the judge
interprets the exclusion clause using ‘rules of
construction’. Generally, the courts interpret them
by giving the words used their ‘natural and
ordinary meaning’. However, under the rules of
construction, it can be seen how the judges often
strained the interpretation to be given to words or
phrases in an effort to protect the weaker party
against the stronger party
The rules of construction
If the words in the exclusion clause are
‘ambiguous’ and so capable of more than one
interpretation, then the courts will tend to use
the ‘contra proferentum’ rule to interpret the
clause to the disadvantage of the person
wanting to rely on it. See for example
Houghton v Trafalgar Inso Co Ltd 1954
The rules of construction
The courts have also not allowed an
exclusion clause to be effective if it
stands in conflict with another term of
the contract because of the
‘repugnancy’ rule.
See for example
Mendelssohn v Normand 1970
Comment on ‘fundamental
breach’.
Since the case of
Photo Production Limited v Securicor
Transport Limited 1980,
the courts approach exclusion clauses
that cover a fundamental breach of
contract just like any other breaches of
contract – on a matter of construction.
Can UCTA 1977 or the 1999
Regulations negate the operation of
an exclusion clause?
A point to note here is that if the court
decides that an exclusion clause is
reasonable under UCTA 1977, then it will
stand because in England there is no
‘general’ doctrine of ‘unfairness’ or
‘unconscionability’ in contract law to protect
the weaker side.
A few points on UCTA 1977
• Firstly, UCTA governs contracts made in
the ‘business setting’
• Secondly, it is based on the ideas of
REASONABLENESS and FAIRNESS
• Thirdly, it does not apply to ALL terms,
generally only to Exclusion Clauses
Section 1 of UCTA 1977
s 1 (1) For the purposes of this part of the Act, ‘negligence’
means
the breach(a) of any obligation, arising from the EXPRESS or IMPLIED
TERMS of a contract, to take reasonable care or
exercise reasonable skill in the performance of the
contract;
(b) of any common law duty to take reasonable care or
exercise reasonable skill
(c) of the common duty of care imposed by the Occupier’s
Liability Act 1957
s 1 (3) In the case of both contract and tort, sections 2 to 7
apply
ONLY to BUSINESS LIABILITY
Section 2 of UCTA 1977
• This section informs us that a person cannot
by reference to a contract term or a notice
exclude or restrict his liability for DEATH OR
PERSONAL INJURY resulting from
negligence.
• However, a person may exclude or restrict his
liability for ANY OTHER TYPE OF LOSS OR
DAMAGE so long as the contract term or
notice satisfies the requirement of
REASONABLENESS.
Section 3 of UCTA 1977
• This section gives protection to both
CONSUMERS and ANYONE TRADING ON
THE BASIS OF A STANDARD FORM
CONTRACT (who may also be a consumer
though it could be a businessperson).
• The section concerns ‘breach’ of contract and
the standard of ‘performance’ of the contract
and subjects any exclusion clauses to the test
of REASONABLENESS.
Can the terms implied under the Sale of
Goods Act 1979 and the Supply of Goods
and Services Act 1982 be excluded?
• The implied term as regards ‘title’ in either act
cannot be excluded at all.
• The implied terms as regards description, quality
and suitability and sample of goods sold under the
SGA 1979 and provided under the SGSA 1982,
CANNOT be excluded as regards CONSUMERS
but
• may be excluded in business to business
contracts when the exclusion clause will be put to
the test of reasonableness under UCTA.
Section 11 of UCTA 1977
s 11 (1) states that the court should decide
whether the term in the contract was a fair
and reasonable term in the light of
- circumstances known to the parties
- circumstances that ought reasonably to
have been
known to them
- circumstances that were in their
contemplation
when the contract was made.
Factors the courts consider when
looking at section 11 reasonableness
• was there equality or inequality of bargaining
power?
• was the contract on a standard form contract?
• were alternative contracts available?
• did one party deal as a consumer?
• did the parties have a previous course of dealing?
• was one party covered by insurance so that the
contract reflected an allocation of risk to the one
insured?
• was the price lower due to the exclusion clause
and acceptance of risk?
Commercial cases on UCTA
1977
See
R W Green Ltd v Cade Brothers Farms
1978
and
Monarch Airlines Ltd v London Luton
Airport Ltd 1997
A consumer case under
UCTA 1977
See
Smith v Eric S Bush 1990
House of Lords
Lord Templeman in Smith case
Lord Templeman said that there were 3 questions to
consider:
i. whether the surveyor owed the purchaser in tort a
duty to exercise reasonable care in carrying out
the valuation
ii. whether a disclaimer of liability (that is, an
exclusion clause) by the valuer is a notice which
comes under the control of the UCTA 1977
iii.if it does, whether it is ‘fair and reasonable’ to let
the valuer rely on the exclusion clause
Lord Templeman on point 3
above
The valuer knows that if he fails to
exercise reasonable care and skill the
result may be disastrous for the
purchaser. As a result, he felt it was not
fair and reasonable for the building
societies and valuers to put the risk of
loss, due to incompetence or
carelessness by the valuers, onto the
purchasers.
Lord Griffiths in the Smith
case
• felt that the disclaimer was caught by UCTA.
• He came to this conclusion by constructing
section 1(1)(b), and section 11(3) together
with section 13(1). Lord Griffiths said that
these sections introduced a ‘but for’ test –
would the duty of care exist ‘but for’ the
notice? If yes then it could not be excluded.
Otherwise the Act would be toothless.
Lord Griffiths concluded:
That it would not be fair and reasonable
to let the valuer exclude his liability. He
added that this decision applied to a
modest dwelling house and that the
position might be different for a more
expensive house or commercial
property where it might be reasonable
to expect the purchaser to obtain their
own survey
Composite exclusion
clauses.
• When considering such clauses the courts
only look at the ‘whole clause’ – they won’t
split it up into bits. So, unless the whole
clause is the subject of scrutiny for
reasonableness, the reasonableness test
cannot be applied to just one of the bits of the
clause.
• This was decided in Stewert Gill Ltd v Horatio
Myer and Co Ltd 1992.
Who is a consumer?
A person is a consumer where they do not
make the contract in the course of a
business whereas the party they are dealing
with does, and the goods concerned are of
the type ordinarily supplied for private use.
R & B Customs Brokers Co Ltd v United
Dominions Trust Ltd 1988
Unfair Terms in Consumer
Contracts Regulations 1999
The 2 main tests for deciding if a term is unfair
are:
i. is the term contrary to the requirement of
‘good faith’ and
ii. does it cause a ‘significant imbalance’ in
the parties’ rights and obligations under the
contract to the detriment of the consumer