CT - Exclusion clauses

• An exclusion clause is a term which attempts to limit or restrict the liability of the supplier or the rights of the consumer
• Exclusion Clauses

  • Exclusion clauses also include terms in a contract that limit liability
  • They are often found in standard form contracts and on notices
  • They work legitimately but only where each party has equal bargaining power, which is often not the case for consumers
• Freedom of contract = courts generally accept that the parties to a contract can agree to any terms

  Balanced by idea that during a negotiation n one party in a much stronger position

  If court think a term is unfair then its not binding on the consumer
• Court consider whether term part of contract

  3 matters to consider:

  1. Whether agreement is signed - if its signed it means you are aware the exclusion clause exists
  2. whether any notice with the term is in incorporated in the contract - Asking were you aware of exclusion clause before entering contract
  3. Whether the term is incorporated as a result of the previous dealings of the parties
• Consideration 1 - signed agreement

  L'Estrange v Gracoub - L bought cigarette vending machine from G. Signed contract including clause which excludes all implied conditions and warranties. Machine didn't work and L relied on implied term that it wasn't fit for purpose but she was bound by exclusion clause, even though she hadn't read the contract

  TELLS US: Demonstrates rule where when they sign the agreement they are bound by it
• Consideration 1 - signed agreement

  Curtis v Chemical Cleaning and Dyeing Co Ltd - C took wedding dress to be cleaned and asked to sign agreement exempting the cleaner from liability for any damage. However she was told it only referred to the sequins or beads. When the dress was returned it had a large stain on it and due to the oral reassurances made to C, the D couldn't rely on exclusion clause

  TELLS US: Where meaning of the clause or its consequences have been queried before signing, the exclusion clause may be interpreted as what the oral statement suggests
• Consideration 2 - Notice to incorporate a term

  • Incorporation can only happen if it was brought to the attention of the person suffering the exclusion clause
  • Introducing new terms after acceptance will fail unless there's a new contract varying original one
• Consideration 2

  • Olley v Marlborough Court Hotel - C booked into hotel at reception, wen tout and let they at reception as required. Someone took Key and went into room and took belongings, hotel claimed they not liable because of exclusion clause but that wasn't made aware when forming contract.
  • CASE TELLS US - Case demonstrates problem of incorporation arises when the terms are not made clear when the contract is made. Exclusion clause must be brought to their attention,
• An exclusion clause will only be incorporated into a contract when on an objective examination it is contained in a document that has contractual significance
• Consideration 3 - Previous dealings

  Hollier v Rambler Motors - C had used services of D garage 3-4 times. Each time he'd been asked to sign document excluding liability for any damage. On this occasion, contract done over phone and no reference to exclusion clause made. Garage damaged car and sought to invoke exclusion clause through prior dealings. There wasn't sufficient number of regularity to amount to incorporation through previous dealings.

  CASE TELLS US : Rule that if parties have dealt on same terms in past provided there's been consistent course of dealing
• Consideration 3 - previous dealings

  McCutcheon v David MacBrayne Ltd - C often used Ds ferries, Sometimes he was asked to sign exclusion clause. On this occasion, one relative took car to ferry. Given receipt but wasn't asked to sign and he didn't read it, then ferry sank and it was destroyed. The court decided there was no consistent course of action that allowed it to assume claimant knew exclusion clause always present.

  CASE TELLS US: Case shows however that the courts are reluctant to find that prior dealings can incorporate an exclusion clause.
• The effect of exclusion clauses to 3rd parties

  Exclusion clause may not offer protection to 3rd party

  • Scruttons Ltd v Midlands Silicones Ltd - C was the owner of goods which were shipped , contract limited liability of the carrier for damage cause to goods to 500. Carrier contracted with D to unload goods. D damaged them. D was not party to contract between owner and carrier so prevented D from limiting liability to 500.
• The Contra Proferentem Rule 


  • There is doubt about the meaning of the terms, the words will be interpreted against the person who put them in the contract.
  • Tends to narrow the use of na exclusion clause to protect consumers.
• Statutory Controls

  Exist to deal with an imbalance between parties to a contract.

  Two principal provisions provided

  • Unfair contract terms Act - Applies to exclusions for liability in tort as well as contractual breaches
  • Consumer Rights Act 2015 - applies to contracts between trader and consumers
• Unfair contract terms Act 1977

  • Act of parliament that regulates contracts by restricting the operation and legality of some contract terms introduced to give consumers greater protection and it distinguishes between a consumer contract and one between businesses.
  • The act makes certain exclusion clauses void and some valid if they satisfy the reasonableness test.
  • Warren v Trueprint LTD - An exclusion clause is invalid and will not be legally binding if the court decided that the clause is unreasonable in the circumstances
• Test 1 for unreasonableness

  Section 11(1) the test isbwhether the insertion of the term in the contract is reasonable in the light of what was known to the parties at the time when the contract was made

  Sometimes known as the knowledge test

  This can be seen in the case of Smith v Eric S Bush
• Test 2 for unreasonableness

  Section 11(2) covers exclusion clauses involving breaches of the implied conditions in the Sale of Goods act 1979 and Supply of Goods and Service Act in business to business dealings. Criteria set out in UFA :

  • The strength of the bargaining position
  • whether the customer received an inducement (incentive) to agree the term
  • whether the customer knew of the existence and extent of the term
  • Likelihood of compliance with term exclude
  • whether the goods were manufactured, processed or adapted to the special order of the customer
• Test 2 for unreasonableness

  Watford electronics Ltd v Sanderson - case shows that an exclusion clause is reasonable if the party had equal bargaining power during negotiations
• Test 3 for unreasonableness

  Section 11(4) specifically relates to limitation clauses .

  There are 2 criteria :

  • the resources which the D could expect to be available for meeting his or her liability, should it arise
  • How far it was open to the defendant to cover him - or herself by insurance against any successful claim
  • This can be seen in the case of George Mitchell Ltd v Finney Lock Seeds Ltd