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Law of Contract – Exclusion Clauses

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    An exclusion clause is a term in a contract purporting to exclude or restrict the liability of one or more parties to the contract for breach of obligation . Exclusion clauses are controlled by common law and statute. The Unfair Contract Terms Act 1977 (UCTA 1977) and the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR 1999) confine the extent to which an individual can exclude or limit his business liability towards consumers. The Office of Fair Trading runs an unfair terms unit which inspects exclusion clauses and enforces the 1999 regulation.

    In this case, there are two exemption clauses in which Practical Electricals Ltd. is trying to exclude liability. Exclusion clauses must be properly incorporated into the contract as a term and cover the loss suffered. Incorporation will be effective if a written document is signed and even if not read (L’Estrange v Gracob) . Incorporation of an exclusion clause by writing will, however, be unenforceable if an offeree has been persuaded to sign by misrepresentation (Curtis v Chemical Cleaning and Dyeing Co Ltd) .

    Moreover, exclusion clauses can be incorporated into the contract by previous dealing (Spurling v Bradshaw) . Exclusion clauses can be incorporated by reasonable notice (Parker v South Eastern Railway) . The general rule for incorporation by notice is that the exclusion clause must be brought to the notice of the other party before or at the time the contract is made: Olley v Marlbourough Court Hotel , whereby notification was made after formation of the contract.

    The same principle follows in Thornton v Shoe Lane Parking Ltd , whereby the court has prevented reliance on exclusion clauses that were not fairly and reasonably brought to the other party’s attention. Therefore, applying the two above cases to the present case, the exclusion clauses may not be enforceable as the document containing the clauses was handed over after the contract was made, that is when Marion received the receipt and consequently the clauses may not have been incorporated. Assuming the exclusion clauses have been incorporated into the contract by notice, we should now deal with their construction.

    The actual case is concerned with a standard-form contract whereby the exemption clauses have not been freely negotiated (pre-formulated contract whereby the UTCCR 1999, reg. 4(1) may apply). An enforceable exclusion clause should be ‘most clearly and unambiguously expressed’ and should relate to the breach. Moreover, in Spurling v Bradshaw, Lord Denning stated: ‘Some clauses would need to be printed in red ink with a red hand pointing to it before the notice could be held to be sufficient. ’ The notice in the actual case may thereby be held to be insufficient as the clauses ‘were printed in a very small letters’.

    Furthermore, there is vagueness in the first clause regarding the words ‘injury’ and ‘howsoever caused’, as it does not specify which type of injury. Similarly, in Houghton v Trafalgar Insurance (1954) , the word ‘load’ in the exclusion was held to be ambiguous. Also, in Internet Broadcasting Corporation Ltd v Mar LLC , the judge stated that clarity and unambiguousness of words in a clause were essential, rather than merely pointing out to their literal meaning. Therefore, the exclusion clause may not be effective and applying the contra proferentem rule (reg. (2) of UTCCR 1999 – Governors of the Peabody Trust v Reeve , the clause will be interpreted against Practical Electricals Ltd. If the company is trying to exclude liability for negligence, at common law, clarity of words is vital as seen in Canada Steamship Lines v The King and White v John Warwick Co. Ltd . However, section 2(1) of UCTA 1977 renders totally unenforceable any exemptions of liability for death or personal injury caused by negligence and thus the company cannot exclude liability for the electric shock which Marion suffered.

    Additionally, under section 2(2) of UCTA 1977, the company can exclude liability for other ‘damage’, that is, damage to the dress resulting from negligence, provided that the reasonableness test is satisfied. The reasonableness test is defined under section 11(1) of UCTA 1977 as whether the term is a fair and reasonable one to have been added at the time the agreement was being made (George Mitchell Ltd v Finney Lock Seeds Ltd) . This is also applicable under regulation 5 of UTCCR 1999, which contains the unfairness test.

    Applying the reasonableness test and the George Mitchell case, the exclusion clause cannot be regarded as reasonable as the defect in the appliance has proved to be highly detrimental to Marion and her job, her dress being ‘badly ripped’ and she has also incurred losses as the appliances were costly. There has also been breach of the sales assistant’s assurance about the purpose of the appliances. Incorporation of the second exclusion clause is also likely to have taken place by notice. There is no issue concerning its wordings which were expressed with clarity.

    In addition, Marion clearly specifies the purpose for which she needs the washing machine and steam iron, that is, to “wash and iron…costumes which were delicate… had sequins and beads… ” This could be regarded as Marion’s condition to buy to the appliances, as seen in Baldry v Marshall . The sales assistant thereby guaranteed that the appliances were appropriate for Marion’s purpose (Section 14 of the Sale of Goods Act (SGA) 1979 and section 4 of the Supply of Goods and Services Act (SGSA) 1982), which induced the latter to buy the products.

    Thus, the company cannot exclude liability for breach of the implied obligations, as it is trying to do in its second exclusion clause (that is, s. 14 of the SGA 1979 and s. 4 of the SGSA 1982) relating to the contract under s. 6 (2) and s. 7 (2) of UCTA 1977, whereby it is clearly stated that liability for breach of implied terms cannot be exempted, where just like in this case, one party, is dealing as a consumer. Practical Electricals Ltd can thus not rely on the two exclusion clauses for the reasons set above.

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    Law of Contract – Exclusion Clauses. (2017, Jan 09). Retrieved from https://graduateway.com/law-of-contract-exclusion-clauses/

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