contract terms - exclusion clauses

• Exclusion clause


  A term in a contract that excludes or limits liability for a breach of the contract
• Exclusion clauses are often found in standard contracts or on notices
• Courts generally accept that parties are free to agree on whatever terms they like. However, the Courts do recognise there will often be a party in a stronger position than the other e.g., individual versus business. This has led to the Courts trying to limit exclusion clauses where possible.
• Rules relating to construction and interpretation of contracts 


  The assumption that both parties have understood accurately the terms within a contract.

  A dispute will arise when there is a term that is argued to have different meanings from the different parties.

  For exclusion clauses, these will usually put someone in the contract into a stronger bargaining position.

  Most people do not read the terms unless there is a breach. Only at this point will terms of the contract be interpreted (contra proferentem rule)
• Whether an agreement is signed


  • The basic rule is that if you sign an agreement, then you are bound to that agreement (L'Estrange v Graucob)
  • However, if a term in a contract has been misrepresented, then the term will be interpreted in accordance with the misrepresentation, not what is written (Curtis v Chemical Cleaning and Dyeing)
• Contra proferentem rule


  Where there is doubt about the meaning of a term in a contract, the words will be construed against the person who put them in the contract. This means that the Courts will take a narrow approach to interpretations (Transocean Drilling v Providence Resources).

  In consumer contracts, if a term has multiple meanings, the meaning most favorable to the consumer will prevail (section 69 of the Consumer Rights Act 2015)
• Certain types of exclusion clauses are invalidated by the Unfair Contract Terms Act 1977 and will therefore be unenforceable:
• Exclusions and limitations made void by the act - Section 2(1) of the Unfair Contract Terms Act 1977


  A person cannot exclude liability for death or personal injury caused by negligence.
• Exclusions and limitations made void by the Act - Section 6(1) of the Unfair Contract Terms Act 1977


  An implied condition (from the Sales of Goods Act 1979 and Supply of Goods and Services Act 1982) cannot be excluded.
• Section 3 of the Unfair Contract Terms Act 1977- liability arising in contract


  This imposes a reasonableness test to contracts where one party is subject to the other's standard written terms of business.

  The guidelines for the test of reasonableness can be found in sections 11 and schedule 2 of the act.
• Section 11(1) of the Unfair Contract Terms Act 1977 - The "Reasonableness" Test


  Is the exclusion clause reasonable considering what the parties knew at the time of when the contract was made? (Smith v Eric S Bush)
• Section 11(2) of the Unfair Contract Terms Act 1977 - The "Reasonableness" Test


  Exclusion clauses that involve breaches of implied conditions (i.e., Sale of Goods Act 1979 and Supply of Goods and Services Act 1982) must consider criteria set out in schedule 2 of the Act. (Watford Electronics v Sanderson)

  • Bargaining Power of the parties.
  • Bribes or persuasions to include a term.
  • Knowledge of the extent of the term.
  • Likelihood of compliance with the term.
  • If goods were specifically ordered.
• Section 11(4) of the Unfair Contract Terms Act 1977 - The "Reasonableness" Test


  Specifically for limitation clauses, could the defendant have protected themselves against liability (i.e., insurance)? (George Mitchell v Finney Lock Seeds)
• Section 11(5) of the Unfair Contract Terms Act 1977 - The "Reasonableness" Test


  This requires the party who inserts the clause in the contract to show that it is reasonable in all circumstances to include it. (Warren v Truprint)
• Section 31 of the Consumer Rights Act 2015


  Prohibits a term excluding or limiting liability in supply of goods contracts. This is prohibited in the following sections: 9, 10, 11, 14, 15.
• Section 57 of the Consumer Rights Act 2015


  Prohibits a term excluding or limiting liability in supply of services contracts. This is prohibited in the following sections: 49, 50, 51, 52.
• Section 62 of the Consumer Rights Act 2015


  Requires that all consumer contract terms and notices are to be fair. 'Unfair' is defined as terms which put the consumer at a disadvantage, through limiting the consumer's rights or disproportionately increasing their obligations ('fairness' test). Terms relating to the main subject matter of the contract will not be subject to the 'fairness' test if they are transparent and prominent.
• Section 65 of the Consumer Rights Act 2015


  Prohibits the exclusion or restriction of liability for death or personal injury resulting from negligence.
• Rules relating to construction and interpretation of contracts


  When assessing the validity of an exclusion clause, the Courts will look at the contract as a whole to establish the intention of the parties (Glynn v Margetson).
• Rules relating to construction and interpretation of contracts

  The courts will consider:

  • Use of Language - the ordinary english words mean what they say. If the words of a contract are clear this shows intention of the parties (Pink Floyd music v EMI Records)
  • Objective test - how would a reasonable man interpret the meaning of the contract? (Investors Compensation Scheme v West Bromwich Building society)
  • Context of the contract - background and contexual information helps to establish the intentions of the parties at the time the contract was made (Hoiggard v Climate Renewables)
• Whether any notice with the term in it is incorporated in the contract by reasonable notice


  This involves incorporating notices into a contract. Incorporation can only happen if, at the time the contract was made, it was brought to the attention of the person suffering the exclusion clause.

  Any attempt to introduce new terms to the contract after acceptance will fail, unless there is a new contract to vary the original contract. This means that problems to do with incorporation arise when a term has not been made clear (Thornton v Shoe Lane Parking)
• Whether any notice with the term in it is incorporated in the contract by reasonable notice 


  This means that when we are considering whether there has been reasonable notice, we need to see that:

  1. The contractual document must reference a distinction between a contract and a receipt (Chapelton v Barry)
  2. There must be reasonable steps to draw the exclusion clause to the other party's attention (Parker v South Eastern Railway)
  3. The reasonable notice must be given before the conclusion of the contract by acceptance of an offer (Thornton v Shoe Lane Parking)
• Whether the term is incorporated as a result of the previous dealings of the parties


  If the parties have dealt on the same terms in the past, it is possible to imply knowledge of the clause from past dealings, providing that these dealings have been consistent (Hollier v Rambler Motors)
• The effect of exclusion clauses on Third Parties to the contract.


  The doctrine of privity usually prevents third parties from being able to rely on terms of a contract. This doctrine also applies to exclusion clauses. (Scruttons Ltd v Midland Silicones)

  This can be overruled where there is an expressed term that allows for third parties to be included (i.e. the Contracts (Rights of Third Parties) Act 1999).
• Statute law controls on Exclusion clauses

  There are statutory provisions that may make the clause invalid and of no effect.

  Statutory controls are in place to deal with any imbalances between the parties of a contract.

  The two pieces of state we will be looking at are:

  • Unfair Contract Terms Act 1977 - this provides protection in business-to-business contracts.
  • Consumer Rights Act 2015 - this provides protection in consumer-to-trader contracts.
• Exclusions and limitations made void by the act - Unfair Contract Terms Act 1977


  Certain types of exclusion clauses are invalidated by the Act and will therefore be unenforceable.
• Consumers Rights Act 2015


  The Consumer Rights Act 2015 covers contracts between traders and consumers. The following sections set out criteria for exclusion clauses:

  • section 31
  • section 57
  • section 62
  • section 65