Contract Law LG7 - Lecture notes 7 PDF

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Contract Law LG7 What are exemption clauses? ANY CONTRACT TERM WHICH EITHER SEEKS TO CUT REMEDIES COMPLETELY OR LIMIT LIABILITY. (Exclusion or limited liability clauses) Enforcement of legal rights subject to you satisfying a certain condition; general condition is time frame-> must receive the complaint between a certain time -> out of time? Exclude liability completely. Purpose of clauses; ‘as a seller of goods and services I might say to you the purchases you have a choice , either I can exclude my liability which means I don’t have to buy so much insurance so I can lower price of goods and services or if you don’t want me to , I’m going to pass the cost of insurance onto you and you will have to pay more’.

Distinguishing -law has to strike a balance therefore; Get over three hurdles Incorporation does this fall as part of this contract Construction – interpretation of the breach of contract and loss sustained Regulation – if it is satisfying regulations and construction statue will innerve on the notion of reasonableness. Incorporation of exception clauses –  Above the signature line  Reasonable Notice  have we always contracted on the basis of this exemption clause. Principle Case L’estrange v Gracoub A. 1935 In the absence of fraud or misrepresentation, a person who signs a contractual document is bound by its terms, even if they have not read it.

B. Any misrepresentation as to the existence or extent of an exemption clause will disentitle its creator to the benefit of the exemption.

C. Where notice of terms is given in a document, the document must be one which is known to, or which might reasonably be expected to, contain terms intended to form part of a contract.

D. A person is bound by the exempting condition in a ticket:

Curtis v Chemical cleaning and Dyeing co 1951

Chapelton v Barry UDC 1940

Thornton v Shoe lane Parking 1971

if he knows that the ticket is issued subject to it; or,  if the other party did what was reasonably sufficient to give him notice of it; and what is reasonably sufficient depends on how onerous or unusual the exemption condition is. 

E. Reasonable steps must have been taken to draw the term to the other party’s attention at or before the time the contract is made.

F. If notice was given too late, a court may be able to infer notice of the clause from a previous consistent course of dealings between the parties.

Olley v Marlborough Court Ltd (1949)

Hardwick Game Farm v Suffolk Agricultural Poultry Producers Assoc. (1969) Lilxlico&sons

Construction (Interpretation) As a matter of construction is the clause purporting to exclude liability for the particular breach and the loss/ damage it has caused?  Does this clause cover the type of breach?  Does it cover the loss or damage which the innocent party has sustained? (Carefully read the words of exemption clause)

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Law takes the view that if this is your clause in the first place then you should’ve done that OBVIOUSLY. Therefore, its developed tests; Contra Proferentem rule – the person who profanes the law is construed against you ->If there is ambiguity then that is going to be resolved in the innocent parties’ favour.

Clause.

1. ‘The Company is not responsible for damage caused by fire to customers’ cars on the premises.’

Facts

Claimant’s car was being repaired at the defendants’ garage when it was damaged by fire caused by the defendants’ negligence.

Decision Holier v Rambler motors The clause didn’t work as it is ambiguous where the fire was caused – intention, negligence etc. The party should have made this clause clear and according to the contra Proferentem rule we must rule against you.

2. Car insurance policy excluded liability for damage ‘caused or arising whilst the car is conveying any load in excess of that which it was constructed for.’

At the time of the accident there were six people in a car with seating accommodation for only five.

Houghton v Trafalgar insurance (leading case on the Contra. P.Rule) Any load is ambiguous, many lorries have warnings on them therefore if you have a vehicle showing more tonnes u can use it, but the fact that it had people it wouldn’t have worked as a load.

Very clear words must be used to exclude negligence liability. How so ever caused including through negligence If you’ve acted unreasonably you must bear with the consequences of that- if you want to exclude from that you must make it obvious. After 1977 the law becomes nice with construction… Photo Production Ltd v Securicor Transport Ltd (1980) HOL DECIDED- There is no rule of law that liability cannot be excluded for an exceptionally serious breach. Case facts; Employ security services to make sure everything was all safe at night Fire ->BREACH of reasonable care and skill PROFIT LOSS AND PROPERTY DAMAGES

HOL DECISION: it was a matter of pure construction, they thought it was clear enough (OBVIOUS) to cover deliberate breach of contract unless it could’ve been foreseen. However, the factory was insurance, so the fight was against photo productions insurance vs Securicor transports insurance. They looked at various factors and thought they should look at the contract and understand it. Fair allocation of risk. Unfair Contract Terms Act (UCTA) 1977 Reasonable or not – only relates to exemption clauses And as of 2015 only relates to business to business contracts • No effect -Clause in a negotiated contract which excludes liability for breach of an express. term • Exclusion is ineffective Clause which excludes negligence liability causing death/ personal injury – s2(1) UCTA

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Subjects clause to ‘requirement of reasonableness’

Reasonableness test – s11 UCTA ‘the requirement of reasonableness…is that 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.’ Reasonable test UCTA S2 - exempting liability for negligence causing loss/damage S3 - clauses exempting liability for breach of an express term of only in a written standard form contract S 6 and 7 - apply to clauses exempting liability for the statutory implied terms relating to goods

Schedule 2 Guidelines a) Relative bargaining positions of the parties- This is the biggest guild line that carries greater weight of reasonableness. The court will generally try to protect the weaker party. ‘Experienced businessmen representing substantial companies of equal bargaining power should be taken to be the best judge of the commercial fairness of the agreement which they have made, including the fairness of each of the terms in that agreement.’ - per Lord Justice Chadwick in Watford Electronics v Sanderson (2001)

b) Inducement to agree to the exemption clause? – Pay less or benefit of exemption clause or take it away but pay more then, it is generally more reasonable that you have to bear with the consequences. c) The extent to which the customer knew, or ought reasonably to have known of the clause - Because of the way it was formatted or what generally happens in trade customs or because of previous dealings – if you should’ve known its reasonable that you should’ve accepted the result. d) Where the exemption clause will apply if a condition is not complied with, whether it was reasonable to expect compliance with the condition. -no remedy or you have a remedy but must exercise within time frame

e) Bespoke goods -If you contract with someone to do something the generally don’t, and you want an exemption clause then it is reasonable to have that clause. Section 11(4) UCTA – limitation clauses (a) The resources which the defendant could expect to be available to him for the purpose of meeting the liability should it arise.

(b) How far it was open to the defendant to cover himself by insurance. If yes to either one or both of these, then this make it less reasonable Smith v Eric Bush (1990) guidelines- judicial People were looking to buy a house, the house surveyor wrongly valued the house, went up to the HoL, decided that additional guidelines must be taken into account  Negligent liability 

The difficulty of the task- you should know what you’re doing the advice should be easy to comprehend

Reasonableness of the whole clause Stewart Gill v Horatio Myer (1992) Lord Donaldson MR said that, in the face of the wording of s 11 of the 1977 Act: The issue is whether the term [the whole term and nothing but the term] shall have been a fair and reasonable one to be included. Court should consider the entire clause and work out if reasonable.

Watford Electronics v Sanderson (2001) They decided that If you can split an exemption clause into two parts then the court is happening to assess the reasonableness of each part. Third party liability (e.g. in negligence) To what extent (if any) can a third party to the contract rely on an exemption clause? See Contracts (Rights of Third Parties) Act 1999 (LG 3) • A third party can acquire rights under a contract if: -the contract expressly provides that he may acquire a benefit(s1(1)(a); or -the term purports to confer a benefit on him(s1(1)(b).

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The third party must be expressly identified in the contract by name or as a member of a class (e.g. ‘employees’) or answering a particular description.

‘Neither the Company nor its employees shall be liable to the Customer for loss or damage to goods caused by negligence.’

Suggested structure DON’T START WITH AN EXEMPTION CLAUSE; WORK OUT WHAT LIABILITY ( WHO IS TO BLAME AND WHY) IT IS EXEMPTING FIRSTLY. 1. Establish liability 2. Remedies 3. Enforceability of exemption clauses: • Common law rules; (REMEMBER THESE RULES FIRST BEFORE ->) • Incorporation; • Construction. ->UCTA 1977 4. Third party liability? – [ REFER TO RUSSELS CLINIC SCENARIO] Can you sue them in tort? Do they get the benefit of the clause? …. Probably Fair and reasonabnle at the time of contractli...