#15524 - Exemption Clauses 2 Statutory - GDL Contract Law

Contract Law: Exemption clauses 2, Statutory Controls

Recap: Contents of a Contract

• Express terms

• Implied terms SGA 1979 or SGSA 1982 (B2B contract) /terms under CRA 2015 (B2C contract)

• Classification (condition/warranty/innominate)

• Breach and effects

• Has an exemption clause been incorporated? (will court allow it to remain in the contract).

• Does the exemption clause cover the breach?

• What does UCTA 1977 say about the EC?

• What does CRA 2015 say about the EC (briefly)

B2B—Unfair Contract Terms Act (UCTA) 1977

Purpose of UCTA

• Preamble: ‘to impose further limits on the extent to which ... liability for breach of contract, or for negligence or other breach of duty, can be avoided by means of contract terms and otherwise ... ‘

• Does this by provisions that ensure:

• (1) certain types of exemption clauses have no effect

• (2) other types of ex clause are effectively only so far as they satisfy the requirements of reasonableness.

Scope of the act

• Given its name, might be assumed that UCTA applies to all ‘unfair’ terms—actually,

• Only deals with exemption clauses (eg penalty clauses are not in UCTA).

• Exemption clauses = exclusion or limitation clauses.

• UCT A deals with B2B only—only to ‘business liability’.

• S1(3), ‘business liability= liability for breach of obligations or duties arising:

  • A) from things done or to be done by a person in the course of a business (whether his own business or another’s); OR

  • (b) from the occupation of premises used for business purposes of the occupier; and references to liability are to be read accordingly ... ‘

• Non-contractual NOTICES also –s2(1). i.e. tortious liability, eg trespassers, occupiers’ liability. Not a subject for contract GDL, will come across in tort.

• S10—prohibition on using secondary contracts to evade UCTA

• S13, prevents:

  • (a) making a liability or its enforcement subject to restrictive or onerous conditions;

  • (b) excluding or restricting any right or remedy in respect of the liability, or subjecting a person to any prejudice or any consequence of his pursuing any such right or remedy;

  • (c) excluding or restricting rules of evidence or procedure which would have the effect of circumventing UCTA provisions.

Main sections of UCTA

• Following sections deal with exemption clauses exempting liability for:

  • S2: negligence

  • S3: breach of contractual term (an express contractual term, written or incorporated into contract).

  • S6: breach of term implied by SGA or SGSA (Hire purchase).

  • S13: defines EC (includes a limitation clause (LC)).

  • S14: defines ‘business’ (includes local and public authorities).

Exemption clauses which have no effect

• Exempting liability for death/PI resulting from negligence (s2(1))

• Exempting liability for breach of statutory implied terms about title to goods (s6(1)): in relation to s21 SGA 1979 (seller’s title).

Exemption clauses which are effective only so far as they satisfy the requirements of reasonableness

• Exempting liability for other loss (not PI/death) resulting from negligence, s2(2)

• Exempting liability for breach of statutory implied terms about quality of goods (s6(1A)). : re ss13, 14, 16 SGA.

• Exempting liability arising in contract (s3(1))

S2 UCTA-Negligence

• Negligence for purpose of UCTA defined in s1(1), includes:

  • (a) ‘breach of any express or implied contract term to take reasonable care or exercise reasonable skill’ is negligence. i.e. contractual duties of care--Eg breach of s13 SGSA (implies term of reasonable care and skill).

  • (b) Any common law duty to take reasonable care or reasonable skill (i.e. tort of negligence, not on GDL contract module).

  • (c) The common law duty imposed by the Occupiers’ Liability Act 1957.

• S2 UCTA, is the exemption clause valid?

  • If PI/Death--- exemption clause invalid (s2(1)), ex clause has no effect.

  • If other loss or damage—ex clause must be ‘reasonable’ (s2(2)) to be valid.

• What is ‘reasonable’—found in s11 UCTA (dealt with at end of lecture), because most of the other sections point to s11

S3 UCTA—Breach of express contractual term

• Involves straightforward contractual liability, i.e. breach of an express contractual term.

• Generally the EC will be valid

• UNLESS the claimant business has contracted on the other Defendant’s business’s standard terms of business. That implies that the first business has not had an opportunity to negotiate/bargain freely—which means there may be an ‘unreasonable’ element to the EC. So if D has used standards terms of business, EC only valid if ex clause is ‘reasonable’ –go to s11

• Where party deals on its own written standard terms of business (s3(1)), the contractual term will not apply UNLESS reasonableness test applies, to:

  • (1) exclude/restrict any liability for breach of contract (s3(2)(a));

  • (2) claim to be entitled to render a contractual performance substantially different from that which was reasonably expected (s3(2)(b)(i));

  • OR (3) claim to be entitled in respect of the whole or any part of the contractual obligation, to render no performance at all (s3(2)(b)(ii)).

• S3(2)(a) self-explanatory, v important: unless it passes the ‘reasonable test’, a party cannot include a term in its written standard terms which excludes/limits liability in the event it commits any breach of contract.

• S3(2)(b)(i & ii): prevent a party from inserting term(s) in its written terms of business to permit actions which would ordinarily be breaches of contract. Rendering contractual performance substantially different from that which was reasonably expected; or rendering on performance at all, would both usually be breaches.

• If a party were allowed to include terms permitting such actions, it would not be in breach of contract and therefore s3(2)(a) would not bite.

• UCTA does not define ‘deals on written standard terms of business’, but courts apply a common sense approach:

  • St Albans City Council v International Computers (1995): even where a party’s general terms had been the subject of negotiation, they were still dealing on ‘standard terms’ for the purposes of UCTA, as the terms remained effectively untouched.

  • However, a number of bespoke negotiated alterations to a standard form can lead the contract being outside the scope of UCTA, The Flamar Pride (1990):

  • More recently, if the limitation clauses are from one party’s standard terms, then even if other clauses are negotiated or come from the other party, UCTA will apply: Commercial Management v Mitchell Design and Construct (2016).

• Due to s3(1) requirement for dealing on ‘written standard terms’, any B2B contract which is concluded other than on ‘written standard terms’ it outside UCTA: so individually negotiated B2B contracts are free to include whatever exemptions they agree.

S6—breach of term implied by SGA/SGSA

• Either for sale of goods, or supply of services

• SGA, ss12, 13, 14, 15

• S6(1): Breach of term re title (including seller has the right to sell the goods) (s12 SGA) ex clause invalid (s6(1)). (it’s never going to be ok to sell something you don’t actually own).

• S6(1A): Breach of other terms (s13, 14, 15 SGA) ex clause valid IF ‘reasonable’ (go to s11). [[these sections relate to conformity of goods with description (s13) or sample (s15); and quality or fitness for a particular purpose (s14)]].

• SGSA—is the clause reasonable.

S11 & Sch 2, the reasonableness test

• S11(1): ‘ ... shall have been a fair and reasonable’ ... with regard to the circumstances ‘when the contract was made’. i.e. at the time of contracting.

• Eg bargaining power/resources of one side CF the other.

• S11(2): non-exhaustive list of ‘guidelines for court’ set out in Sch 2

  • Guidelines for court in Sch 2: are ‘of general application to the requirement of reasonableness’, i.e. they apply whenever the reasonableness test is being applied--Stewart Gill v Horatio Myer (1992). Can apply for exemption clauses regarding any type of liability. Even though s11(1) explicitly states that Sch 2 guidelines should be taken into account for purposes of s6 and s27 UCTA.

Guidelines:

• (a) the strength of the bargaining positions of the parties relative to each other, at time of contracting, eg alternative means by which the customer’s requirements could have been met;

• (b) Inducement to agree to the term--if there’s an inducement for entering the contract, more likely to be found reasonable, because you’ve been given something extra.

• (c) Notice—did ythe customer knew or ought reasonably to have known of the existence and extent of the term (having regard, inter alia, to any custom of the trade and any previous course of dealing between the parties).

• (d) Condition precedents —where the term excludes/restrictions any relevant liability if some condition was not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable--any condition precedents which make it difficult for you to, in fact, get around the ex clause. Eg does a limitation clause specify that you need to contact our CEO within 12 hours with written intention to sue. If this condition precedent is so hard to fulfil, the ex clause won’t be upheld.

• (e) special orders—whether the goods were manufactured, processed or adapted to the special order of the customer--is the good/service something for special order, i.e. something you have had the ability to negotiate with the other party. If so, you are more likely to have accepted the ex clause.

• S11(3): [[irrelevant to contract GDL]] non-contractual notices.

• S11(4): Limitation clauses—specific additional considerations.

  • S11(4)(a): resources of proferens

  • S11(4)(b): whether ...