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#3217 - Exclusion Clauses - Commercial and IP

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Commercial Law

Exclusion Clauses

Definition:

  • A clause which attempts to limit, exclude, define liability [see S.13 UCTA 1977]

It includes:

  • Exclusion / restriction of liability

  • S.13(1)(a) making liability or its enforcement subject to restrictive or onerous conditions [e.g. you can only complain within 10 days of delivery]

  • S.13(1)(b) excluding or restricting any right to remedy in respect of liability or subjecting a person to any prejudice in consequence of his pursuing any such remedy [e.g. if you sue us we will terminate out agreement with you]

How to rely on a EC = the three hurdles

Incorporation Signature

  • Customer who signs is bound whether or not he reads the terms
Reasonable Notice

  • Incorporate through reference to terms / conditions in another contractual document [e.g. confirmation slip; sales invoice; NOT a receipt]

  • Court will want to see that reasonable steps were taken to incorporate

  • Timing: Olley v Malborough Court = must be referred to before contract is made.

  • Smith v South Wales Switchgear = if Party B have not received notice that a particular version of the terms are to be incorporated, it is implied that the most recent version of terms are the ones incorporated.

  • Onerous terms: Interfoto Picture Library v Stilleto = there should be further steps taken to highlight the term [e.g. bold & large print; Placing a clear terms at the beginning of the document advising the other party that attention is particularly drawn to certain conditions]
Previous course of dealing

  • Party A and Party B have contracted on a regular basis

  • Terms always incorporated and no objections have been raised to the terms
Trade custom

  • Party A and Party B are involved in the same trade

  • They are both aware that certain conditions are customarily implied
Construction

  • Does the clause cover the breach?

  • The clause must:

  1. Cover the breach which actually occurs; and

  2. Exclude the seller’s liability for that breach

  • Contra proferentem [construed against the person trying to rely on it]

  • Clear and unambiguous wording needed
Statutory supervision / control

  1. UCTA 1997

  2. UTCC Regulation 1999

  3. Misrepresentation Act 1967

Unfair Contract Terms Act 1977:

S.2

All contracts - Negligence:

  • S.2(1): No contract can exclude liability for death or PI which is a result of negligence

  • S.2(2): Other damage / loss = EC must be reasonable
S.3

B2C contracts or where one party has incorporated standard terms

  • EC must be reasonable
S.6

  • S.6(1): All contracts: S.12 SGS cannot be excluded [title]

  • S.6(2): B2C Contracts: S.13,14,15 SGA cannot be excluded [description, quality, sample]

  • S.6(3): B2B contracts: S.13,14,15 SGA will be excluded to the extent that they satisfy the requirement of reasonableness.

Consider the test for a consumer:

  • S.12 UCTA “Dealing as a consumer”

  • Is the person doing something integral to his trade / part of his day to day activities.
S.11

Reasonableness:

  • Refers to schedule 2 – this is not an exhaustive list [just gives guidelines]

  • B2C contracts – courts more likely to view contract with common sense [i.e. was it fair]

  • B2B contracts – schedule 2 factors can be considered and given more weight.

  • Burden of proof: on party seeking to rely on the EC

  • Time of assessment is the time at which the contract was concluded [“in contemplation of the parties when the contract wad made – S.11]

  • AEG v Logic Resource: even if the exemption clause is incorporated, if Party B did not have notice of it – the court may find that the cuase is unreasonable.
S.11

Misrepresentation Act 1967:

  • S.3 MISREP Act says that for S.2(1) or innocent Misrep – the clause is subject to the reasonableness test in S.11(1) UCTA.

  • Applies to ANY contract [B2B or B2C] – so can apply to fully negotiated contracts between businesses.

  • Overbrook Estates v Glencombe 1974: authority for the argument that a clause excluding the authority of agents to make representations was not caught by S.3 MISrep Act because, in essence, it was not an exclusion clause. HOWEVER – courts likely to take a different approach today and such a clause will be subject to S.11 UCTA reasonableness test.
S.26

Jurisdiction issues:

S.26(1) UCTA does not apply to contracts described in subsection 3

S.26(3): contracts which are outside the jurisdiction

[contrast to the Regulation which is derived from EC law so the other country will have a mirror regulation. Parties can choose where to bring the action.
Schedule 1

Contracts to which UCTA does not apply:

  • Insurance contracts

  • Contracts for sale of interests in land

  • Contracts that deal with creation / transfer of IP rights

  • Contracts which relate to dissolution of a company

Unfair Terms in Consumer Contracts Regulations 1999

Reg.4

  • Applies to B2C contracts made on STANDARD terms [i.e not individually negotiated]

  • Terms are unfair

  • Reg.3 = interpretation of Consumer = natural person who is acting for purposes which is outside his trade / business / profession.

  • If some terms are individually negotiated = hybrid contract! Regulation will apply to the standard terms only. But if the contract is mostly negotiated it is likely the regulation will not apply at all.
Reg. 5

Unfair terms:

  • Unfair = contrary to good faith, causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer.

Test:

  • No Good faith [i.e. duty to deal fairly and openly is breached]

  • Significant imbalance
Reg.6

Assessment of unfairness

What the court will consider when determining if term is unfair =

  • Nature of goods

  • Circumstances of the contract [e.g. choice of the consumer]
Reg.7

  • 7(1): WRITTEN terms should be in plain, intelligible language

  • 7(2): if it is not, interpretation that is most favorable to consumer will be adopted.
Sch.2

  • Non-exhaustive list of what can be unfair

Not limited to exclusion clauses

Includes terms which require...
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