#15523 - Exemption Clauses 1 - GDL Contract Law

Contract Law: Exemption Clauses 1, Common law controls

• ; and

• Explain and apply the statutory rules governing exemption clauses.

Overview

• The common law controls

• ‘Incorporation’—is the exemption clause part of the contract

• ‘Construction’—is the clause, as drafted, effective in excluding/limiting liability.

• The statutory controls

• The Unfair Contract Terms Act 1977

• The Consumer Rights Act 2015

• So 3 levels of control on exemption clauses: (1) Incorporation (common law); (2) Construction (common law); (3) Statutory controls

Definition of exemption clause

• A term ‘which excludes or modifies an obligation, whether primary … [or] … general secondary …, that would otherwise arise under the contract by implication of law’

  • –per Diplock LJ, Photo Productions v Securicor (1980).

• So one, or both, parties, looking to rely on a contractual term to exclude or restrict liability which would otherwise arise from that contract.

How Exemption clauses work—the debate

• The Definitional View:

  • Laissez faire—freedom of contract.

• OR the Exclusory Approach

  • Paternalistic and interventionist

  • They take away liabilities which would otherwise be there. You read the contract as if the exemption clauses weren’t there—and then see what restrictions the exemption clauses introduce.

  • This more modern view is more suspicious and cautious re exemption clauses, to protect consumers, last 50/60years growing strength of this cautionary approach through judicial activism and statute.

  • Why? To protect consumers, in light of huge increase in mass contracting, standard form contracting, that does not allow for ‘equal bargaining’ as the freedom of contract doctrine originally envisaged.

Controlling Exemption Clauses

• (1) Incorporation

• (2) Construction

• [[both common law]

• (3) Statutory Regulation:

  • Unfair Contract Terms Act 1977: B2B

  • CRA 2015: B2C.

1. INCORPORATION

• Three ways can be incorporated into a contract:

  • (1) Signature

  • (2) Reasonable Notice

  • (3) Consistence and regular course of dealing

(1) Signature

• Signature binds (L’Estrange v Graucob (1934))—strict rule:

  • Facts: café owner contracting to buying a vending machine; she signed the sales agreement without reading it; it basically excluded liability for everything. Machine delivered, was not fit for purpose under SGA 1893 s14(1).

  • HELD: the printer term was legible and so incorporated by her signature, doesn’t matter that she didn’t read it, even though the sales agreement was in ‘regrettably small print’.

  • Per Scrutton LJ: ‘When a document containing a contractual term is signed, then, in the absence of fraud or ... misrepresentation, the party signing it is bound and it is immaterial whether he read the document or not’.

• Unless exceptions apply:

• Signature will not bind

• (1) If there has been a misrepresentation—overriding oral assurance, oral misrepresentation

  • Curtis v Chemical Cleaning (1951)

  • Dress taken to dry cleaners by Mrs Curtis. Given terms to sign. Whilst signing, shop assistant said that the terms only contained an exemption clause for damages to beads and sequins. In fact, it contained a much wider exemption clause for any damage.

  • Cleaner stained dress. HELD: sales assistant had misrepresented the effect of exemption clause, so it wasn’t effective against Mrs Curtis, who could recover damages.

  • See also Axa Sun Life Services v Campbell Martin (2011), CA

• (2) Nature of document--If the document containing the exemption clause has no contractual effect

  • Grogan v Robin Meredith Plant Hire (1996):

  • Hired a machine and driver for a daily rate. Standard conditions for the industry—including an indemnity in the event of damage to 3^rd parties. HELD: the timesheet was basically just an administrative/accounting document, wasn’t one that a reasonable person would consider to contain contractual terms. Timing issue, the contract had already been concluded earlier.

• (3) If the defence of Non est factum (‘this is not my deed’) applies—fundamental mistake in signing, through no fault of own:

  • By making this plea, the part is saying they document they signed is fundamentally different from what they meant to sign.

  • Saunders v Anglia Building Soc (1971): elderly widow had gifted title deeds of her house to nephew; she was subsequently asked to sign a document by friend of nephew, who told her it was to do with the gift; in sign the document conveyed the house to the friend. Tried non est factum defence, but it failed. Held: the transaction she thought she was signing was not fundamentally different from the document she intended to sign.

(2) Incorporation through notice--Reasonable Notice

• Reasonable notice = proferens must take reasonable steps to bring the term to the other party’s notice—doesn’t matter if the other party has actually seen it.

  • Parker v South Eastern Railways (1877): luggage left at a train station cloakroom. On face of ticket said ‘See Back’--On back of ticket was a 10 limit to responsibility for any loss.

  • C’s bag was lost; brought an action for damages; he hadn’t read the notice on back of ticket.

  • CA: the jury had been misdirected to consider whether C had read or was aware of the exemption clause. It was about notice—had reasonable steps been taken to give notice, to bring to C’s attention.

  • HELD: that exemption was incorporated. Company had taken reasonable steps—where a party receives a document with writing on it, by receiving and keeping the document he has notice, as long as proferens has done what is reasonable to bring attention to the other party. Yes in this case, by being written on back of ticket.

• Incorporation by reference?

  • Thompson v London, Midland & Scottish Railway (1930)

  • C gave niece money to buy an excursion ticket. Ticket said ‘see back’--on back of ticket, said it was subject to the conditions set out in a railway timetable. printed ‘excursion, for conditions see back’. Such terms said that excursion tickets would give no right of suing the company for any injury caused.

  • Jury found: company had not taken reasonable steps. But judge found for defendants.

  • CA found for defendants, exemption clause applied: it is no answer that you have to go and search for the conditions. It is ok to incorporate by reference—the customer could go and find the terms if they wanted to—handing over the ticket with the reference to conditions being elsewhere was reasonable notice. Even though C could not read.

  • [[note that, if the company knew that C couldn’t read, that might not have been reasonable notice—see Harvey v Ventilatorenfabrik Oelde (1988): contract was written in German, exclusion clause inserted without knowledge of other party; party relying on clause knew that the other could not read German—CA: clause was not incorporated.

  • O’Brien v MGN (2001)

  • A scratch-card competition in Daily Mirror. Mirror argued T&Cs applied. The T&Cs were not even in that edition of the Mirror, although they had been in previous editions. HELD: the exemption clauses were incorporated, because you could go and find the T&Cs if you wanted to.

  • Where document does not have clear words on the fact of it directing it to an exemption clause on the reverse, unlikely it will be incorporated—Henderson v Stevenson (1875):

  • If clauses rendered illegible, unlikely incorporated: eg by a date stamp. Sugar v London, Midland & Scottish Railway (1941).

• Reasonable Notice: Timing---Notice must be given before or at the time of contract

  • Olley v Marlborough Court Hotel (1949)

  • A married couple went to hotel; paid in advance at reception; went upstairs to room. On back of door of room, was a sign which the hotel claimed was a notice, saying proprietors not responsible for lost or stolen articles.

  • Negligence by hotel, a rogue stole valuables.

  • HELD: the contract was made earlier at the desk, and so the clause introduced on the back of the bedroom door was too late, and not incorporated.

  • Thornton v Shoe Lane Parking (1971):

  • An automatic machine in parking lot. On the ticket, it said ‘issued subject to T&Cs displayed on the premises’. On a pillar inside the car park was an exemption clause excluding liability for personal injury. HELD: the offer was made at the car park entrance, the automatic machine is an offer, when ticket is ‘thrust’ at the driver—so the contract could not then be altered by any signs inside the car park or on the ticket.

  • Denning: ‘the machine would remain unmoved’—any T&Cs that the car park owners wished to impose, need to come before you go and press the machine button.

  • Denning MR distinguished between situations where a ticket is purchased in a face-to-face transaction (eg at a ticket office), and situations where a ticket is purchased from a machine: at a machine, the offer is made when ticket is offered; and acceptance when customer puts money in slot. The customer is bound by terms placed on or near the machine stating what is offered for the money—not bound by terms printed on the ticket, because the ticket comes too late, the contract has already been made ... ‘

• Reasonable Notice: Onerous Clause

  • If Onerous clause, greater notice required.

  • Known as ‘Red Hand rule’ (from Denning in Spurling v Bradshaw).

  • Parker: circumstances dictate whether proferor has objectively given reasonable notice.

  • Thornton v Shoe Lane Parking: Denning—exemption clause re personal injury, an onerous clause, needs to be explicitly bought to car park user’s attention.

  • Lord Denning MR: ‘ ... it is so wide and so destructive of rights that the court should not rule any man bound by it unless it is drawn to his attention in the most explicit way’.

  • Interfoto Picture...