Business(Management)AffairsLecture7CONTENTSOFACONTRACT2ExemptionClausesEXEMPTIONCLAUSESExemptionclausesallowpartiesto“budget”forthefinancialcostsofpotentiallegalliabilitytoenableagenuineassessmentofrisk.EXCLUSIONCLAUSESseektoexcludeliabilityforbreachofalegalobligationi.e.“weacceptnoliabilityfor……….”LIMITATIONCLAUSESseektolimitliabilityi.e.“Damageswillbelimitedto￡x………..”CONTROLOFEXEMPTIONCLAUSESTopreventtheavoidanceofliabilityfornegligenceand/orgrossandirresponsiblebreachofcontract,anexemptionclausemustsatisfy3criteria:-1)itmustbeincorporatedintothecontract2)itmustbeclearandunambiguous3)itmustsatisfystatutoryrequirements1)Incorporation–thetimingofnoticeForatermtobeincorporatedinto(i.e.becomepartof)acontract,NOTICEofthelimitationorexclusionofliabilitymustbegivenPRIORTOACCEPTANCEoftheoffer.OLLEYVMARLBOROUGHCOURTHOTEL[1949]1AllER93:-Anoticeintheclaimantshotelbedroomstatedthattheproprietorwouldnotbeliablefortheftofguestsproperty.LaterjewelleryandfurswerestolenfromherroomHELD:-ThecontractwasconcludedatthereceptiondeskwhenMrsOlleybookedin,beforeshereadthenotice.Itdidnotthereforeformpartofthecontractandthehotelwasnotexemptfromliabilityforthetheft.ApartymaybedeemedtohaveIMPLIEDNOTICEfrompastcontractsifthecourtsissatisfiedthatthesehavebeenonthesameterms,sufficientlyregularlyoverasufficientlengthoftimeKENDALVLILLICO[1968]3WLR110Thepartieshadcontractedonehundredtimesinthepreviousthreeyearsonconsistenttermsofdeliveryincludinganexemptionclauseinasalesnote.ThenextdeliverywasdefectivebutnotaccompaniedbythesalesnoteandthebuyerclaimedthesellerwasnotprotectedbytheexemptionclauseHELD:-thebuyerhadadequatenoticeoftheexemptionclauseasnotificationbythesalesnotehadbeenconsistentlysuppliedthroughoutthelongcourseofpreviouscontractualdealings.Incorporation–sufficiencyofnoticeGenerallyanexemptionclausewillnotbebindingunlesstheofferorhastakenreasonablestepstodrawittothecustomersattentionThemoreoneroustheterm,thegreaterdegreeofnoticeisrequired.ExclusionorlimitationclausesinthebodyofadocumentshouldbeprintedincleartypewhichmayneedtobeunderlinedorhighlightedThesufficiencyruledoesnotcoverSIGNEDDOCUMENTSCustomershaveconstructivenoticeofthecontentsofanycontractualdocumentwhichtheysign,whethertheyhavereaditornotL,ESTRANGEVGRAUCOB[1934]2KB394TheclaimantsignedasalesagreementforavendingmachinewithoutreadingitbutwasheldtobeboundbyanexemptionclauseintheagreementCustomersarenotabletoclaimtheymisunderstoodtheeffectofaclauseunlessthesellerhelpedtocausethemisunderstandingCURTISVCHEMICALCLEANINGANDDYEINGCO[1951]1AllER631:-Curtistookherweddingdresstobecleanedandwasaskedtosignanoteexemptingthedefendantsfromliabilityfordamagetothedress.Shequeriedthisbutsignedwhentolditonlycoveredbeadsandsequins.Thedresswasreturnedbadlystained.ShesuedforbreachofcontractandthedefendantscitedtheexemptionclauseinitsdefenceHELD:-Theexemptionclausewasnoteffectiveasthecustomerhadbeenmisleadaboutitsscope.Thedefendantwasthereforeliableforthestainingtothedress.2)Clearandunambiguous–thecontraproferentemruleIfthewordingofanexemptionclauseisunclearthecourtmayrestrictitseffectbyconstruingtheclauseCONTRA(against)PROFERENTEM(thepartywhoofferedit)sothatthemeaningleastfavourabletotheofferorisadopted.ANDREWSVSINGER[1934]ALLER479:-AcontractwasagreedforthesupplyofcarsandEXPRESSLYstatedthatonlynewvehicleswouldbeprovided.AnexemptionclausestatedthatthesupplierwouldnotbeliableforanybreachofconditionorwarrantyIMPLIEDbystatue.Whenthecarsweredelivered,onewassecond-hand.HELD:-thebuyercouldrejectthesecondhandcarasthebreachwasofanexpresstermandtheexemptionclausereferredonlytoimpliedtermsMoral?BusinesscontractsshouldalwaysbeproofreadpriortoagreementtoensurefitnessforpurposeSubsequentclaimsofmistakeornegligencearedifficultandexpensivetorectify(seelater)fundamentalbreachWhereabreachofcontractissoseriousthatitdefeatsthewholepurposeofthecontractitissaidtobeafundamentalbreachofthecontractThecourtsmayhoweverstillbepreparedtoallowanexemptionclausetoprotectthepartyinbreachifthecustomerisdeemedtohaveintendedtoaccepttheriskofabreachE.g.whenbuyingaplaneticket,theairlinepromisestotakethepassengertotheirdestinationatanagreedtimeThecontractwillusuallyincludeanexemptionclauserestrictingorexcludingtheliabilityoftheairlineintheeventofacancellationoftheflightduetobadweatherPassengersaredeemedtoacceptthatitisdangeroustoflyinbadweatherandthatthisisnotthefaultoftheairline!!3)Statutoryrequirements-UCTALegislationseekstopreventthemisuseofexemptionclausesbybusinessesPrivatesellersorsuppliersarenotgenerallycoveredbythelegislation

THEUNFAIRCONTACTTERMSACT1977(UCTA)protectsbothconsumersandnonconsumers(i.e.businesses)againstattemptstoexcludeorlimitliabilityforbreachofcontractortort.ExemptionswhichbreachtheactcannotbeenforcedUCTAS2(1)providesthatliabilitycannotbeexcludedforDEATHorPERSONALINJURYcausedbynegligence.S2(2)liabilityfordamagetoPROPERTYcausedbynegligencemaybeexcludedifitis“reasonable”S3providesthatliabilityforBREACHofcontractmaynotbeexcluded:-1)ifapartyentersintoastandardformcontacti.e.onewherenonegotiationispossibleor2)wherethepartyisaconsumer-unlesstheexclusionis“reasonable”Attemptstoexclude/limitliabilityforbreachofimpliedtermsLiabilityforbreachofS12–15SGA1979cannotbeexcludedagainstaconsumer(i.e.someonenotcontractinginthecourseofabusiness)Abuyerwhoisnotaconsumerisnotasfullyprotected.LiabilityforbreachofS12(title)cannotbeexcluded.LiabilityunderS13-15canbeexcludediftheclauseis“reasonable”reasonableness–s11S11providesguidanceastowhatis“reasonable”Acontacttermwillsatisfytherequirementof“reasonableness“ifitisfairandreasonablewithregardtoallthecircumstanceswhichshouldhavebeenconsideredbythepartieswhentheyenteredthecontractreasonableness–schedule2:-considerations1)Anyimbalanceofbargainingpowerwhichreducestheabilitytonegotiate2)Anyinducementsorchoices:-anunfairinducementtoacceptanexemptionclausemaybeunreasonablebutifthepartycouldhavechosentoenterintoacontractwithanotherpartywithoutthetermthenitmaybereasonable3)Anypriorknowledgeofthetermthatthecustomershouldreasonablyhavebeenawareoffrompreviouscontractualdealings4)Specialrequirements:-Ifgoodsweremade/adaptedtomeetthecustomersrequirements,anexemptionmaybebindingThecourtmayalsoconsidertheappropriatenessoftakingoutinsuranceandwhetherthepartiesshouldhaveundertakenindependentadviseSMITHVERICS.BUSH[1989]2WLR790:-Smithbroughtahouseinrelianceonasurveyorsreportwhichcontainedanexemptionclausewhichstatedthatitwasissuedwithoutanyguaranteeofaccuracyoracceptanceoflegalliability.ThesurveyornegligentlyoverlookedadefecttotheChimneywhichlatercollapsedresultinginalargebillforstructuralrepairsHELD:-theexemptionclausewasunreasonableandnoteffectiveas:-1)thepartiesdidnothaveequalbargainingpower:-theclaimantcouldnotbeexpectedtoknowwhetherthereportwascorrectornot2)thefinancialresourcesoftheclaimant:-Smithwasafirsttimebuyerofamodestpropertyanditwasnotreasonabletoexpecthertogetasecondopinion3)thesurveyorwasnegligent:-anyreasonablycompetentsurveyoroughttohavespottedthedefect4)insurance:-Thiswasavailableatamodestcosttothesurveyorbutthepurchaserwasunlikelytohavesuchprotection3)Statutoryrequirements–