Exemption Clauses 2 Statutory Notes

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’...

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