Exclusion Clauses - International Commercial Law

STEP 1

APPLY REASONABLE TEST UNDER UCTA S.11(1)

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UCTA applies to all commercial agreements. S. 11(1) UCTA states that an agreement’s exclusion clauses are subject to the reasonableness test:

• UCTA S.3 Liability arising in contract (Applies to contracts with Standard T&Cs) Apply reasonable test

• UCTA S. 6(3) Liability for breach of the terms of the contract cannot be excluded or restricted by refrence to any contract term and can only be excluded in so far as the term satisfies the reasonableness test

• UCTA S. 11(1) “the term shall have been fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.

• UCTA Sch 2 (gives the guidelines for the application of the test)

• Sch 2(a) The relative bargaining power of the parties

• Sch 2(a) whether any choice was available (could B have acquired the goods elsewhere?)

• Sch 2(b) whether B was offered any inducement to accept the clause

• Sch 2(c) The extent of the parties’ knowledge of the existence and effect of the terms

• Sch 2(d) whether it was practicable to comply with any condition imposed on bringing a claim

• Sch 2(d) whether the goods were manufactured, processed, or adapted to special order of B

• It is unusual for one factor alone (of Sch 2) to be conclusive on reasonableness

• The party relying on the exclusion must prove its reasonableness.

STEP 3

OTHER RELEVANT FACTORS APPLIED BY THE COURT

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Courts will consider many factors apart from Sch 2 to determine reasonableness:

• CASE LAW = authority = Watford Electronics Ltd v Sanderson CFL Ltd 2001

• how widely drafted is the clause

• does it give the innocent party alternative remedies?

• Nature of the goods?

• Availability of insurance?

• BARGAINING STRENGTH and RELATIONSHIP BETWEEN the PARTIES :

• Negotiate or standard-form contract = Did P’s negotiate the contract or was it imposed by one of the two parties?

• Market in which the parties operate = Are both P’s familiar with the market and market conditions?

• Financial Pressure = Was one party forced to accept the Exclusion Clause because of its financial situation at the time?

• Age and experience of the buyer

• Effect of legal advice

• Drafting techniques = was it clearly drafted and it is relevant?

• Attitude of the courts = if the B is a consumer, any exclusion clause is more likely to fail the reasonableness test; if the contract is between commercial parties, it is more likely to pass.

• CHOICE

• Do other suppliers use the clause? = could the B have obtained the goods or services form another supplier which does not impose the exclusion clause?

• Two-tier- pricing = the S charges a lower price if B accepts the exclusion clause, and a higher price if the contract contains a modified version or no clause at all.

• BUYER’S KNOWLEDGE AND UNDERSTANDING OF THE CLAUSE

• It is the knowledge and understanding of the parties at the time the contract was made that will be relevant.

• Nature of the goods= is the product likely to raise predictable problems?

• Negotiation = have the parties negotiated the clause and are aware of it?

• Short and simple drafting

• Size of print, layout and appearance

• Position of the clause

• COMPLIANCE WITH CONDITIONS

• For example a time bar clause stating that the right to reject is lost if defects are not notified to S within a specified period

• GOODS MANUFACTURED TO SPECIAL ORDER

• OTHER FACTORS:

• Price = if the loss for breach is disproportionate to the contract price then the exclusion clause is reasonable

• Allocation of risk insurance