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2. Essay question
Explain how the courts and legislation approach exclusion clauses.
This question involves topics of Exemption Clauses in Common Law (courts) and lecture on Exemption Clauses in Legislation.
Answer:
The purpose of an exemption clause is to reduce or exclude liability of a party relying on the clause. Exemption clauses have been subject to control by courts and also by legislation. (Very good introduction, defines the subject of the question).
The courts must first of all make sure that the clause has been incorporated into the contract between the parties. If there was no incorporation, the clause cannot be relied upon and the party cannot escape liability. Further, if the clause has been incorporated, the courts will interpret its contents against the party relying on it.
(Here the student already started analysing the first matter – approach of the courts. No time wasting. Introduction of the two main elements of the courts’ approach as mentioned in the handbook. What should follow now is just the development of these, supported with case law).
As far as incorporation of the clause is concerned, the most straightforward case would be when the other party signed the document containing the clause. In such cases the clause will normally be incorporated, even if the signing party did not read the document (for example in the case of L’Estrange v Groucob), unless the contents of the clause were misrepresented to the signing party or there was a fraud (in the case of Curtis the clause was misrepresented to the person who gave the dress to the dry cleaners. The cleaners were then not able to rely on the clause to avoid liability for damaging the dress). In other cases, reasonable notice is required for incorporation to take place (Thompson – only reasonable notice, the party does not have to make sure that absolutely everyone reads the clause). The notice ought to be given in reasonable time, which is at the time of making the contract or before (Olley), and on the appropriate document (hence not a receipt – Chapelton v Barry). Sometimes the clause can also be incorporated by previous dealings (but in Hollierit was not – insufficient number of dealings) or custom (British Crane Hire).
(This is quite a complex topic and involves many cases. It is absolutely crucial to conduct an analysis similar to the one above – very brief, but shows understanding. That is sufficient, and there is no time for more details).
As far as the interpretation of the incorporated clauses is concerned, according to the contra proferentum rule the courts will interpret the clause against the party relying on it. The party relying on the clause must make sure it is drafted precisely, as for instance in Wallis v Pratt, where the defendants specified they would not be liable for breach of ’any warranties’, they were still held liable for a breach of a condition.
(This topic actually contains four cases in the handbook, but as long as the rule has been explained properly and supported with one well-understood case it should be absolutely sufficient).
Legislation introduced control over many exemption clauses. The main Acts of Parliament applicable to exemption clauses are: The Unfair Contract Terms Act 1977 (UCTA) and the Unfair Contract Terms Regulations 1999 (UCTR). UCTA in some cases makes it impossible to exclude liability and in other cases will only allow exclusion if the clause is reasonable. UCTR makes all unfair terms in contracts invalid.
(Again good introduction of the issue. Pay attention to the abbreviations – they save time and as long as you explain in the beginning what they mean you can then use them throughout your answer. But now beware!!! This is a long and complex topic and writing about everything mentioned in the handbook is simply impossible. You must work it for yourself into ‘small chewable pieces’ and make the whole piece fit into 10 or 15 minutes which you have left. Several ways in which you can do this are possible, so the one below is just an example).
UCTA distinguishes between consumer contracts (contracts between consumers – those who do not make contract in the course of a business, and persons who are acting in the course of a business) and business contracts (between two persons acting in the course of a business). According to UCTA liability for a breach of the terms implied in contracts for sale or supply of goods (title, satisfactory quality, compliance with description, fitness for purpose, compliance with a sample) cannot be excluded in consumer contracts. (Implied by what Acts of Parliament? – a little weakness here) In business contracts liability for breach of the implied term as to title cannot be excluded, and for breach of other terms – can be excluded if the term is reasonable. Liability for other breaches of contract cannot be excluded unless the exclusion clause is reasonable (this in all types of contracts). As far as liability for negligence is concerned, the solution is more complex. UCTA applies here to business liability towards consumers and non-consumers. Liability for death and personal injury resulting from such negligence cannot be excluded. Liability for other loss or damage resulting from negligence can be excluded if the exemption clause is reasonable.
(Good, the main controls over exemption clauses were explained. Now all is left to do is to explain what ‘reasonable’ means).
What exactly is reasonable depends upon whether it is contract or negligence at stake. UCTA stipulates that contractual exemption clauses are reasonable if it was reasonable to include them in the circumstances. UCTA gives some guidelines as to what the courts should pay attention to. These are: Bargaining positions of the parties (Green – here the parties’ position was considered equal, their national associations negotiated the contract. The clause was reasonable), opportunity to take a similar contract elsewhere (Woodman – no such opportunity – unreasonable clause), whether the customer knew of the clause or its extent (The Zinnia), where liability depends upon some condition being met whether it was reasonable to expect that this condition will be met (Green). In terms of liability for negligence UCTA reads that a clause would be reasonable if it was reasonable at the time liability arose. The case of Smith v Bush gave guidelines as to what would be reasonable then: the courts must look at the bargaining positions of the parties, in cases of advice whether it would be reasonable to obtain the advice from other sources, how difficult is the task for which liability is excluded, what are the practical consequences of decision on the question of reasonableness.
(Good, brief explanation of the relevant rules supported by the case law).
UTCR introduce the requirement of fairness for all terms of contracts, including exclusion clauses. Unfair terms are invalid, and an unfair term is a term which is contrary to the requirement of good faith and causes significant imbalance in the rights and obligations of the parties to a contract to the consumer’s detriment.