Incorporation of Exclusion Terms Model Answer

• When considering whether express terms/exclusion clauses have been incorporated, the parties must be aware of them, Thornton v Shoe Lane Parking. The terms must also be prominent, clear and available at the time of contracting and thus before acceptance, Olley v Marlborough Hotel. If agreement was made over the telephone then they were unlikely to have been available at that point.
• Any harsh or unusual or onerous terms must be made clear and explicit, Interfoto v Stiletto Visual Programmes
• Signing a contractual written document normally indicates agreement and incorporates the terms contained within it even if they have not been read or understood by the person signing it, L’Estrange v Graucob. However, the parties will only be bound if what was signed was a contractual document otherwise the signature will not incorporate the terms; Grogan v Robin Meredith, eg a delivery note. There is also an exception where the person seeking to rely on the clause, misled the other party about the meaning of the clause, Curtis v Chemical Cleaning and Dyeing Co. This show that an oral statement can override written terms.
• If separate written terms are presented at the time a contract is made (eg on a ticket or sign) then those terms only become part of the contract if the person suffering the exclusion clause had reasonable notice of them. Chapelton v Barry UDC confirmed an exclusion clause in a receipt given after payment was not incorporated as the parties were not aware of it when making the contract. However, the exclusion clause was incorporated as a term in THOMPSON v LONDON RAILWAY as the ticket referred to terms (including an exclusion clause) displayed on the wall at the time the contract was made. This case confirmed that incorporation by reasonable notice is an objective test (reasonable man) and it is irrelevant if the party affected is blind, illiterate or otherwise unable to understand it. The court will look at if it is reasonable to expect that there is a reference to terms, such as on the back of a ticket, Parker v South Eastern Railway.
• Where a term comes after acceptance, it may still be incorporated by prior course of dealings if use of the terms has been regular and consistent, Kendall v Lillico. In Spurling v Bradshaw, it was included in the standard form contract that the parties had used regularly and consistently. However, this method of incorporation depends on the number of prior dealings and the exclusion clause in the standard form in Hollier v Rambler motors was not incorporated as it had only been used 3 times in 5 years.
• Terms may be implied by custom as long as both parties are aware and that there was a common understanding of the terms to be used, British Crane Hire v Ipswich Plant Hire
• When considering the question of what the exclusion clause covers, common law has tried to control exclusion clauses. The contra proferentem rule prevents terms being given a wide meaning and allows the court to find against the party which inserted the unclear or ambiguous wording into the contract. Where the words in the clause are ambiguous they will be interpreted in the way less favourable to the party relying on them. In Transocean drilling v Providence, this rule did not apply as both parties had equal bargaining power and had negotiated a clear exclusion clause with benefits for both parties.
• The exclusion clause must relate directly to the contract and relate to its main purpose. An exclusion clause must also be true to the intentions of both parties when they drafted the contract, Glynn v Margetson.
• Exclusion clauses are also controlled or regulated by statute. The Unfair Contract Terms Act 1977 gives protection to non-consumer contracts (contracts between two businesses). UCTA 1977 makes certain exclusion clauses void and makes others valid only if they satisfy the test of reasonableness. Under s2(1), a party cannot rely on an exclusion clause that tries to exclude liability for death or personal injury resulting from negligence. Such clauses would be void.
• Under s2(2), in the case of other loss or damage, a person cannot exclude or restrict their liability for negligence unless the term is reasonable in which case it would be valid.
• The tests for whether an exclusion clause is reasonable are set out in s11. S11(1) is the knowledge test which decides whether the exclusion clause is a fair and reasonable one to include based on what was known to the parties when the contract was made. This was seen in Smith v Eric Bush where the exclusion clause protecting a surveyor for liability for negligent work was unreasonable (and invalid) given the knowledge and expertise of the professional surveyor.
• S11(2) is the circumstances test which decides whether the exclusion clause is a fair and reasonable one to include in all the circumstances when the contract was made. This test considers whether the parties had equal bargaining power; whether it would have been reasonable to have got advice elsewhere and whether the job done was a difficult one that required the protection of an exclusion clause. This was seen in Watford Electronics v Sanderson where the exclusion clause was reasonable because the parties were of equal bargaining power and the exclusion clause (limiting liability to the price of the goods supplied) had been the subject of negotiation when the contract was made.
• S11(4) is the resources/insurance test which applies only to limitation clauses (not exclusion clauses) and considers whether the limitation clause is a fair and reasonable one to include based on the resources that the defendant has available and whether they could get insurance. This was seen in George Mitchell v Finney Lock Seeds where the limitation clause was found to be unreasonable because Finney had resources and had previously settled other claims that exceeded the limitation sum (implying he did not find the clause fair and reasonable) and he could have insured against crop failure.
• Alternatively, the Consumer Rights Act 2015 (CRA 2015) gives protection to consumer contracts (contracts between a consumer and a trader). Under S31 CRA 2015 the implied terms relating to the sale of goods in s9, s10, s11, s14-17 cannot be excluded in a consumer contract. S57 CRA 2015 prohibits a term excluding or limiting liability for the supply of services under s49-52. S65 CRA 2015 prohibits exclusion or restriction of lability for death or personal injury resulting from negligence.
• Under s62, there is a requirement for all consumer contract terms and notices to be fair. The fairness test under s62(4) states that an unfair term is not binding on the consumer and it is unfair if it causes a significant imbalance in the parties’ rights and obligations under the contract to the consumer’s detriment.
• The Unfair Contract Terms Guidance 2015 identifies a grey list of possible exclusion clauses and terms that could be unfair depending on the circumstances such as exclusion clauses on: death and serious injury; on poor service; on faulty or misdescribed products; for delay, trader’s right to cancel without warning/refund, binding a consumer to hidden terms, allow disproportionate changes, requires the consumer to pay for services which they have not been supplied when the consumer ends the contract, allow the trader to change the price after the consumer is bound.
• Terms relating to the main subject matter of the contract or terms that set the price are not subject to the fairness test if they are both transparent and prominent.