Exclusion Clauses

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Introduction

Exclusion clauses are terms that exclude or limit liability for a party when they breach the contract

Exclusion clauses are allowed due to freedom of contract

The courts do intervene occasionally e.g. to prevent a party in a stronger bargaining position from exploiting the other party

A 3-stage approach to exclusion clauses

For an exclusion clause to have effect it must pass 3 stages:

  1. Incorporation of exclusion clauses into the contract
  2. The test of “construction” must be passed
  3. Must satisfy the statute

1) Incorporation

There are 3 ways an exclusion clause can be incorporated in a contract:

  • a) Signature
  • b) Notice
  • c) Previous course of dealings

a) Incorporating an exclusion clause by signature

Usually if a contract is signed the exclusion clause is binding

Sometimes a signed contract can be challenged, for example where the party only the signed the contract due to a misrepresentation e.g. Curtis v Chemical Cleaning and Dyeing [1951]

b) Notice

See, for example, Parker v South East Railway (1876-7) 2 CPD 416:

Facts:  The claimant left luggage at the defendant's cloakroom. The defendant gave a ticket to the claimant which on the back said the defendant had no liability for lost/stolen goods over £10 (this was also said in the cloakroom). The claimant’s luggage was lost/stolen and the claimant tried to recover the loss.

Held:  The Court of Appeal said the the defendant had to have made reasonable steps to ensure the other party knew the exclusion clause existed

So:

Unusual clauses and the ‘red hand rule’

  • If the clause is particularly unusual more notice is required e.g. in J Spurling Ltd v Bradhshaw [1956], Denning stated some unusual clauses 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”

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CONTENT

c) Incorporation via a previous course of dealings

There are two requirements for an exclusion clause to be incorporated via a previous course of dealing:

  • i) There must be sufficient notice of the clause
  • ii) There must be consistency in the previous dealings

i) There must be sufficient notice of the clause

ii) There must be consistency in the previous dealings

2) The clause must pass the test of "construction"

3) The clause must satisfy the statute

a) Unfair Contract Terms Act 1977 (UCTA)

The UCTA makes some clauses void straight away. Other clauses must pass a test to determine how reasonable it is

S2 applies to negligence liability. Under S2(1), liability for death or personal injury as a result of negligence cannot be excluded and a clause purporting to exclude such liability will be automatically void. Under s2(2), a clause seeking to exclude liability for other loss or damage will be subjected to the test of reasonableness

S6 and S7 apply to strict liability. If ownership rights in property pass under the contract (such as a contract for the sale of goods) then s6 will apply. Both sections draw a distinction between business and consumer contracts. Liability for breach of a term implied under the Sale of Goods Act 1979, or the Supply of Goods Act 1982, cannot be excluded in a consumer contract. Such liability can be excluded in a business contract but only if the clause passes the test of reasonableness

The Unfair Terms in Consumer Contracts Regulation 1999

This only applies to consumer contracts and the test of fairness is applied (if it does not pass this test it is said to be contrary to “good faith” requirements)

The main difference between this and the UCTA is that the UTCCR is about business to consumer contracts, but the UCTA is about business to business contracts

This also applies to ANY unfair term, whilst the UCTA only really applied to exclusion/limitation clauses

  • A term “which has not been individually negotiated shall be regarded as unfair if, contrary to the requirements of good faith, it causes significant imbalance in the parties rights and obligations arising under the contract, to the detriment of the consumer”

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