Exclusion and Limitation Clauses

Exclusion and Limitation Clauses Exclusion and limitation clauses are clauses of a contract which seek to exclude or limit liability which would otherwise arise. Lowering the liability of one party in circumstances where there is a breach of contract – i.e. maximum payout. Breach of contract is determined by measuring the circumstances against the terms of the contract – an exclusion/limitation clause will not be valid if it is unfair and is not effective at protecting the party that put it into the contract. E.g. selling a kettle: - Implied conditions under SOGA 79 for goods sold in the course of a business. Section 14(2) – satisfactory quality Section 14(3) – reasonably FFP Breach of these terms usually results in damages being paid i.e. for loss of profit, personal injury, loss of earnings, property damage. Liabilities of seller to buyer (SOGA, SGSA, CRA, UCTA) cannot be excluded, only ones of a party to the contract can be excluded/limited. Relevant principles: - Remoteness of loss – damages for breach, losses which were too remote will be automatically excluded. C can only get damages for losses which do not normally arise as a result of breach of contract but which do occur because of unusual circumstances (indirect losses). Positives/Negatives: - For business-consumer contracts, they may weaken the already weaker bargaining position of C. Can remove some of the consumer’s protection. For contracts between businesses, so long as the businesses read the contract (as is expected from large commercial contracts), it can make the contract more effective for the parties and can protect them from incurring huge costs if there was a breach. Steps when courts consider: 1. Is there a clause present which appears to exclude/limit D’s liability for the loss suffered by C? 2. If so, has it been effectively incorporated into the contract? 3. If so, what does the clause mean? 4. Does either of the statutory sets of rules controlling these clauses (UCTA for nonconsumer contracts, CRA where a consumer is involved) affect the validity of the clause? Is it incorporated? - - L’Estrange v Graucob – was the contract signed? Signature reflects agreement so will make the contract binding. If no signed doc, has D taken reasonable steps to make C aware of the clause before sale? Olley v Marlborough Court Hotel – was D aware of the term before the contract was made? If introduced afterwards, it is not valid. Thornton v Shoe Lane Parking/Chapelton v Barry UDC (deckchairs) – was the document of objective contractual significance? I.e. a receipt may not suffice. Spurling v Bradshaw – the more extreme an exclusion clause, more steps should be taken to bring it to the attention of the other party McCutcheon v David MacBrayne Ltd – were there any prior dealings between the parties that have repeatedly involved the clause? British Crane Hire v Ipswich Plant Hire – was it a typical standard contract in a particular commercial sector that the parties would be expected to be aware of? The modern approach to interpretation of these clauses is to look at the commercial context of the contract to establish the intentions of the parties – Investors Compensation Scheme v West Bromwich Building Society. UCTA sook to prevent the courts from needing to create artificial interpretations of exclusion clauses. ‘contra proferentem’ rule – interpret ambiguities in contract drafts against the party that put it in there, Transocean Drilling v Providence Resources [2016]. Denning’s principle that you can’t exclude liability for a ‘fundamental breach’ of contract – Photo Production Ltd v Securicor Transport Ltd, shown to mean a term that would be at the root of the contract. When attempting to exclude liability of negligence, there should be an express mention of it for the courts to consider. If no express mention, courts will consider how wide the words involved in the excl/lim clause were; and if wide enough, if they could be interpreted to cover loss arising from another type of liability (if so, the clause should only be considered as covering this liability, not negligence). Statutes Statutory controls: - B2B contracts – UCTA 1977 B2C contracts – CRA 2015, previously SOGA/SGSA pre-2015 Consumer contracts: - Contract between a trader and a consumer (s. 61 CRA) A ‘trader’ is a person acting for purposes relating to their trade or business. - A ‘consumer’ is an individual acting for purposes wholly or mainly outside of their trade. UCTA 1977: - - - Only about terms which exclude or limit liability. Insurance contracts, contracts on the sale of land etc. do not apply. Only applies to attempted excl/lims of ‘business liability’. Also covers clauses which prevent a duty from existing before liability has even arisen (s. 13) – Smith v Eric S. Bush, Lord Griffiths said this was effectively a question of whether a DoC would exist but for the exclusion. Automatically ineffective clauses include: o clauses which seek to excl/lim liability for death or personal injury by negligence under s. 2(1). o Clauses which seek to excl/lim liability for your own fraud/dishonesty – Pearson v Dublin Corp. Some clauses are also subject to reasonableness reqs.: o Clauses excluding liability in neg/breach of DoC cases for losses other than death/personal injury i.e. property damage. o Clauses excluding liability for selling defective goods to non-consumer customers (ss. 6-7). o Clauses excl/lim liability for a breach of contract where the clause is contained within a business’ ‘written standard terms of business’ (s. 3). UCTA reasonableness test: - - - “Term [must] be a fair and reasonable one to be included having regard to the circumstances which were or ought reasonably to have been known to the parties when the contract was made” – s. 11(1). Consider: o What were the parties’ bargaining strengths? o Was insurance against the excluded liability available? o Did C know about the exclusion term? o Is the clause clearly worded? o Was it standard or unusual in the sector in question? Post-2015, the courts are fairly apprehensive when ruling out B2B excl/lim clauses. CRA 2015: - “An unfair term in a consumer contract is not binding on the consumer” – s. 62(1). “Unfair terms” are those which are ‘contrary to the requirement of good faith’ and ones which cause a ‘significant imbalance’ in the contract – s. 62(4). Grey list of unfair terms exists for those which create a significant imbalance, i.e. a business changing terms after they had already been agreed upon (raising prices). o Test for fairness. - ‘Core terms’ are not subject to the assessment of fairness (s. 64(1)) but only if they are ‘transparent and prominent’ (s. 64(2)). They are the terms which set out the main subject matter of the contract, i.e. prices – OFT v Abbey National plc (2009). Effect of an unfair term under CRA: - “not binding on the consumer” under s. 62. The rest of the contract will continue to operate without this term. Consumer and Markets Authority will hear claims of these terms and has the power to handle them accordingly. Parking Eye v Beavis (2015) – showed that a car park timing term was not made outside of ‘good faith’ as it did not give rise to a significant imbalance in the contract. EMPHASISE: 1. Is there a clause present which appears to exclude/limit D’s liability for the loss suffered by C? 2. If so, has it been effectively incorporated into the contract? 3. If so, what does the clause mean? 4. Does either of the statutory sets of rules controlling these clauses (UCTA for nonconsumer contracts, CRA where a consumer is involved) affect the validity of the clause?