Exclusion or Exemption clauses

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.

2
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.

3
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.

4
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

5
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.

6
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

7
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

8
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

9
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.

10
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.

11
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

12
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
  Occupiers Liability Act 1957
• s 1 (3) In the case of both contract and tort,
  sections 2 to 7 apply
• ONLY to BUSINESS LIABILITY

13
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.

14
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.

15
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.

16
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.

17
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?

18
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

19
A consumer case under UCTA 1977

• See
• Smith v Eric S Bush 1990
• House of Lords

20
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

21
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.

22
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.

23
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

24
Composite exclusion clauses.

• When considering such clauses the courts only
  look at the whole clause they wont 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.

25
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

26
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