Exemption Clauses

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Exemption Clauses

• A Revision Guide.

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Definitions

• A LIMITATION CLAUSE
• Where a party limits its liability in a
  contract.
• E.g Any damage to customers property will be
  limited to the replacement value or 15,
  whichever is the lower.

• AN EXCLUSION CLAUSE
• Where a party tries to avoid any liability at all
  in contract.
• E.g The management will take no responsibility
  whatsoever for damage to clients property,
  however caused.

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There are three steps traditionally taken be the
court to examine the validity of an exemption
clause to decide whether the clause covers the
damage.

• Incorporationgt is the term part of the contract?
• Constructiongt can the damage which has occurred
  be interpreted as falling within the boundaries
  of the exemption clause?
• Legislationgt is the term allowed within current
  statute law?

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1. Incorporation

• Like any other part of a contract an exemption
  clause must be part of the contract, I.e.
• The term must not come too late Olley v.
  Marlborough Court (1949).
• It must be brought to the attention of the other
  party in a reasonable way Parker v. South
  Eastern Railway (1877).

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• For above points in a modern setting
• - Thornton v. Shoe Lane Parking Ltd. (1971)
• If the term is in a document it must be one
  regarded as contractual
• - Chapelton v. Barry UDC (1940)
• And the writing must not be obscured
• - Sugar v. LMS Railway (1941)
• Remember, parties may have formed a course of
  dealings
• - Hollier v. Rambler Motors (1972)

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2. ConstructionMeaning interpretation in this
context can the clause be interpreted to cover
the damage?

• 1) The Main Purpose Approach
• If an individual clause defeats the main purpose
  of the contract then it will not be allowed to
  stand.
• Glynn v. Margeston (1893) Ship carrying
  oranges, stopped off to collect extra cargo but
  oranges perished. Clause allowing stop defeated
  purpose of contract to deliver oranges in good
  condition.

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• 2) The Contra Proferentem Rule
• Any doubt or ambiguity in an exemption clause
  will be interpreted against the person seeking to
  rely on it.
• Houghton v. Trafalgar Insurance (1954) where
  the word load in a car insurance policy was
  held not to extend to an excess of passengers.

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(Other Common Law Principles)

• An overriding oral statement may contradict an
  exemption clause
• Mendelssohn v. Normand (1970) a garage
  attendant advised a customer to leave his car
  unlocked, items were later stolen from car.
  Exclusion clause disclaiming liability for stolen
  goods held ineffective because of oral statement.

• Even if a contradictory statement turns out to be
  untrue it can still override an exemption clause
• Curtis v. Chemical Cleaning and Dyeing Co (1951)
  plaintiff took wedding dress for cleaning,
  signed document excluding co. from any damage,
  told on enquiry it excluded liability for damage
  to beads/sequins, dress stained, cleaners held
  liable.

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3. Legislation

• The Unfair Contract Terms Act 1977
• The Unfair Terms in Consumer Contract Regulations
  1999

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The Unfair Contract Terms Act 1977

• S2(1)- A contract term cannot now exclude or
  restrict liability for death or personal injury
  resulting from negligence.
• S2(2)- A contract term can only exclude or
  restrict other liability resulting from
  negligence if it is reasonable to do so.
• S3-in a consumer contract, or one on one partys
  standard business terms, terms cannot exclude or
  restrict liability for non-performance or for
  perf. substantially different to that agreed,
  unless it is reasonable to do so.

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The Unfair Terms in Consumer Contracts
Regulations 1999

• European directive incorporated into English law.
• Requirement that terms in a (consumer) contract
  are in plain, intelligible English.
• Reg. 5(1)a term will be unfair and therefore not
  binding if it contrary to the requirement of
  good faith causes a significant imbalance in the
  parties rights and obligations under the contact
  to the detriment of the consumer.
• Legislation requires courts to consider
• Bargaining strength of parties,
• Any inducement to contract,
• Special requirements of customer,
• Has the supplier acted equitably?

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Reasonableness

• Interpreted to mean fair given to the
  circumstances known to the parties at the time,
  from case of Stewart Gill v. Horatio Myer Ltd.
  (1992) takes into account resources avail. and
  possible insurance. Other factors court may
  consider
• Bargaining power whether alternative source
  available,
• Any inducement to agree to term, e.g. favourable
  price,
• Trade custom previous dealings,
• Difficulty of task,
• Whether goods adapted to customers order.

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• George Mitchell v. Finney Lock
• Seeds (1983) contract for supply of cabbage
  seed, clause limited suppliers liab. to purchase
  price (200), crop failed, clause held
  unreasonable, damage over 60,000. Courts
  considered
• Suppliers admission that ex gratia payments
  sometimes made (admission that clause unreas.),
• Magnitude of loss,
• Carelessness of supplier,
• Availability of ins. to supplier.

• Woodman v. Photo Trade
• Processing (1981) a processors liability was
  limited to a replacement film, this was held to
  be unreasonable. Was said though, that it could
  be reasonable if it was made clear that a premium
  (more expensive) was available, without the
  limitation.

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• The Director General of Fair Trading, (a role
  established under this legislation,) supervises,
  receives complaints, can issue legal regulations
  and enforce judgements.