Tutorial 4 notes - contract part 2 PDF

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TUTORIAL 4: EXCLUSION CLAUSES I

The object of this tutorial is to gain an understanding of the law governing exclusion clauses. This is becoming an increasingly complex area since it now includes the common law, English statute law and English regulations directed by European Community law. These sources of law only sometimes overlap.

1. Textbooks Anson, Ch 6 Chen-Wishart, pp. 418-451

2. Casebook McKendrick, Ch 13

3. Cases Suisse Atlantique [1967] A.C. 361 Photo Production v Securicor [1980] A.C. 827 George Mitchell v Finney Lock Seeds [1983] 2 A.C. 803 Phillips v Hyland [1987] 2 All E.R. 620 Thomas v Lohan [1987] 2 All E.R. 631 R & B Customs Brokers v UDT [1988] 1 All E.R. 847 Feldaroll Foundry Plc v Hermes Leasing (London) Ltd [2004] EWCA Civ 747 →Smith v Eric S. Bush [1989] 2 All E.R. 514 →St. Albans City and District Council v International Computers Ltd, [1996] 4 All ER 481 →denotes cases best read in full.

4. Legislation You need to be aware of certain pieces of legislation. We will apply these pieces of legislation in greater detail in our next tutorial.

The Unfair Contract Terms Act 1977 The Consumer Rights Act 2015 - available on the internet from http://www.hmso.gov.uk

Questions

1. What are the purposes for which an exemption clause might be used in a commercial contract and in a contract with a consumer? a. In both commercial and consumer contracts exemption clauses are used by the party relying on the clause as a defence to an action for breach of contract. They are usually to be found in standard for contracts b. Cover the loss c. Don’t cover the fundamental nature of a contract d. Another rule of law that will invalidate the exclusion clause

e. f. g. h. i. j. k. l.

Misrep act may be relevant The 2 consumer/business acts Sale of goods act Consumers right act (a few clauses within are important, the rest are not) Covers exclusions and limitations Only liable up to a point or not at all Exclusion of liability due to the risks of a contract British Fermentation Products: exclusion clauses are there to regulate business relations and protect them. The mistake costs 4 times the price of the contract but the court said the exception clause is still held up. Business to business m. Photo Productions case: their building should have been insured for fires, exclusion clause not upheld. Business to business n. Car Sales case: consumer case o. British Crane Hire: customs and exclusion clauses p. Commercial contracts, the party relying on the clause may allocate the risks of non-performance or defective performance to the other party. The party relying on the clause may seek unfair exemption from certain common law liabilities and seek to deprive the other party of the compensation which that person might reasonably expect to receive for any loss or injury or damage arising out of the transaction q. Standard form contracts with consumers are often contained in some printed ticket or notice or receipt. It is brought to the attention of the consumer at the time the agreement is made. The consumer rarely has the time or the energy to read standard terms. If they do, they cannot vary them r. Canada Steam Ship case: negligence being excluded is acceptable as stated by the courts. They talk about 3 aspects of negligence (carelessness not acceptable). May say negligence explicitly, or will say all losses which would fall under negligence, or applied through statute/common law. Must look at extrinsic factor. If wide enough to include negligence it will be found to be a valid exclusion clause. 2. Mary runs a music shop for a living. She breeds pedigree dogs as a hobby. She regularly buys six months’ supply of dog food at a time from Gourmet Puppyfood Ltd. The contract of sale provides that (a) the buyer must inform Gourmet Puppyfood of any defects in the product within a week of purchase, and (b) any liability for defective products is limited to the contract price. Mary’s latest batch of dog food turns out to be defective, and most of her dogs become ill and require expensive visits to the veterinarian as a result. Advise Mary. - Incorporated into the contract? Its clearly stated, but because she bought it in a shop, its likely not a signature so not L’Estrange case. Custom of practice: she is a breeder and probably does these contracts a lot so she knows these term. It states there is a ‘contract for sale’ Does it cover the losses?

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Limit clause: limiting the damages they have to pay out, so trying to exclude anything else beyond the regular price (probably negligence). Mary runs a music shop for a living. She breeds pedigree dogs as a hobby-> these want us to explore whether they are consumers or businesses. It says hobby, but is she acting as a business? Assumption she’s a consumer, but you could argue a business.

Negligence:

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Cannot exclude personal injury or death, this case doesn’t have that as it was dogs/property that got ill

Consumers right act: term must be fair, causes detriment, hurts the other party and causes an imbalance in their relationship (sec 62)

a. Common law judges permits excluding/limiting term to be relied on only if certain tests are satisfied. i. The term should have been contained in a contractual document ii. The document contained the term should be an vital part of the control iii. Chapelton v Barry – held that the tickets were a mere receipt for the money and a receipt was not a document on which reasonable persons would expect contractual terms. This meant the council could not rely on the clause iv. If the claimant dealt with the council before, the result may have been different. Illustrated in Spurling v Bradshaw – court held that the exclusion clause could be relied upon b. To be bound by exclusion clause the previous course of dealings must be a consistent course of dealings – McCutcheon v David MacBrayne Ltd c. If exclusion clause contained in document which has been signed by a person against whom the exclusion clause is raised, it is said that it will be incorporated in the contract – L’Estrange d. If document contained the clause is unsigned, question is whether reasonable notice of the clause was given before the contract – Olley v Marlborough Court Ltd e. Even if clause is in a signed document & reasonable notice of clause has been given the courts use the contra proferentem rule – states that if there is any doubt as to the meaning and scope of the clause, it would be construed against the person trying to rely on the clause – Hollier v Rambler Motors f. R&B Customs Brokers Co Ltd v United Dominions Trust Ltd i. Facts: claimant was a private company and bought a car for the person and business use of directors. Done this 2-3 times before. Conditional sale contract excluded any implied conditions as to the condition or quality of car. The car began to leak. Court held claimant was a consumer and could take advantage of the provisions of the 1977 act. Court classified the transaction as a consumer transaction on the ground that the purchase of the car was incidental to the business activity of the claimant

ii. Applying this cause, it can be argued Mary’s business is a music shop and the transaction with regard to buying food is as a consumer. Accordingly, UCTA 1977 applies and it states that it is not possible to exclude or restrict liability for breach of implied terms as to satisfactory quality or fitness purpose g. The term that the buyer must inform Gormet of any defects within a week of purchase is unreasonable the purchase is of 6 months supply. It is an onerous term. h. Liability limited to contract price is an unfair term under CRA and mary is not bound. She can sue for the lossess which were in the reasonable contemplation of the contract breaker at the time of the contract 3. John, a businessman, requested Travel Ltd., for a booking fee, to obtain a ticket from Overseas Airways for the 10.00 AM flight to New York on 1st May. The airline ticket contains, inter alia, the following clause: 'The airline does not undertake to find a seat on the flight for which a ticket is issued. In the event of a particular flight being overbooked, a place will be found on the next available flight. In no event will the price of the fare be refunded.' John is not allowed to board the flight for which he is booked. In consequence he is unable to attend an important business meeting in New York and claims that he has lost a valuable contract as a result. John has not previously travelled by air and was unaware of the existence of this type of clause, but was anxious to obtain a firm booking. Travel Ltd had assured him that he 'need have no fears on this account'. Advise John, who refused to take the next available flight, and wants his money back and compensation for loss of opportunity to make a valuable contract. [Ignore the effect of the Trade Descriptions Act 1968] a. If he signed the contract he is bound by the clause. (E’Strange v Graucob). If he did not sign, was reasonable notice given to him of the clause before he entered into the contract (Olley v Marlborough Court). Regardless if he signed or was given reasonable notice, the oral assurance by Travel Ltd overrides the written clause – Curtis v Chemical Dry Cleaning b. 2 contracts: between John and Travel Ltd. and between Travel Ltd. and Overseas Airways. c. John is a consumer. Or is he a businessman buy a ticket for his business. So its a business. d. Westminster v. Mudd: Collateral warranty e. Curtis v. Chemical Cleaning case: written notice had an exclusion clause. They said to her something different outside the written contract. Oral warranty outside the contract ‘to not fear anything in this case.’ f. Evans v. Merzario: g. Its not likely that he would get loss of opportunity based on the oral warranty, but he can get his money back from Travel Ltd, h. Question is if he was a consumer? 4. Smith drove his delivery van into an automatic car park owned by Autopark Ltd. A notice was displayed stating the charges including the words 'all vehicles parked at owners'

risk'. The ticket which Smith pulled from the machine in order to release the automatic barrier contained printed conditions. These included the following provisions: a. Autopark Ltd. will not accept responsibility for any loss sustained by the vehicle, its accessories or contents however caused. b. No variation of these conditions will bind the garage proprietors unless made in writing and signed by their duly authorised manager. As Smith is looking for a place to park he is told by an employee of Autopark that he may leave his van in one of the spaces reserved for 'contract parkers' but that he must leave his key in the ignition so that his van may be moved to an ordinary parking space when one becomes available. Smith, who is late for a delivery, agrees to do so, but his van has disappeared from Autopark's premises when he returns to collect it. Autopark later discover that the employee who spoke to Smith has left without giving notice and cannot be traced. The van is never recovered. Advise Smith:

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A term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer. An unfair term of a consumer contract is not binding on the consumer. If john is a businessman the clause is subject to a reasonable test. If john is a consumer he is not bound by the clause, which can be classified as an unfair term. o Thornton and Shoelane parking case Assume its incorporated based on the notice being before the contract is made Specific attention must be brought to terms that are unusual (b is a random clause) A is an exclusion clause and wide enough to cover negligence (Canada Steamship case) Smith is acting as a business (hints: delivering, drove his delivery van, late for delivery) The employee-> is it negligence for the company OR oral warranty by the employee...