BetterLawNotes-5 (2)

CONTRACT LAW

Exclusion clause questions such as this one can appear daunting. However, it is important to bear in mind that the trick is to get the structure of your answer right. Generally, you will apply the same structure to any problem question involving exclusion clauses.

It is tempting in a question like this to begin by focusing on the exclusion clauses (ie the clauses printed at the foot of Dan’s invoice). But it is very important that BEFORE you consider the effect of an exclusion clause, you establish whether the defendant would, apart from the clause, have any liability. In other words, before turning to the exclusion clause, you must consider whether the loss of which complaint is made has been caused by a breach of contract by the defendant. This is because an exclusion clause is only relevant if there is some liability to exclude. If there is no underlying liability, the exclusion clause is simply not relevant and there is no need to consider it.

So the first thing to do when answering this type of question is to decide whether, apart from the exclusion clause, the defendant would be liable in damages for breach of contract. To resolve this, it is helpful first of all to identify the loss or damage of which complaint has been made. Having identified the loss or losses suffered, you can then examine whether these have been caused by the defendant’s breach of contract (more accurately, by the breach of any term of the contract). This involves identifying the relevant terms, be they express terms or implied terms.

If liability would, apart from the exclusion clause, arise, you must then go on to consider what effect, if any, the exclusion clause has. To do this you must first look at the clause itself. Has it been validly incorporated into the contract? If so, does it cover the loss/liability that has arisen?

If the answer to both questions is yes, you must then turn to the relevant legislation (ie the Unfair Contract Terms Act 1977 or the Consumer Rights Act 2015) to see if the enforceability of the clause is affected. 

Applying that structure to this question, one would proceed as follows:

Step one: what loss or damage has Cato suffered?

Personal injury – pain and suffering and consequential financial loss (medical care costs);

Property damage – damage to kitchen, damage to fryer;

Step two: is Dan prima facie liable for these losses?

Any relevant express terms of the contract? No.

Implied terms?

S 14(2) and (3) of the Sale of Goods Act 1979 – satisfactory quality and fitness for purpose. NB section applies as Dan is selling in the course of a business.

S 13 of the Supply of Goods and Services Act 1982 – service carried out with reasonable care and skill. NB, again, section applies as Dan is selling in the course of a business.

Cato’s personal injury is caused by a breach of s 13 SoGaSA 1982.

The property damage is caused by breach of s 14 SGA. NB liability under s 14 is strict – it is irrelevant that the defect was not reasonably discoverable by Dan.

Therefore, Dan is prima facie liable for loss suffered by Cato.

Step three: is Dan’s liability excluded or limited by the terms of the contract?

On the face of it clause 1 appears to exclude personal injury loss and clause 2 appears to exclude liability for property damage: Cato did not notify Dan within 7 days of installation.

Therefore we must establish whether these clauses are effective:

(i) Are the clauses incorporated into the contract?

Dan must take reasonable steps to bring the clauses to Cato’s attention (Interfoto v Stiletto).

On the face of it he appears not to do so: the contract is made on 1st June but Cato is not notified of the clauses until 24th June. Following Olley v Marlborough Court, it seems that the clauses have been introduced ‘too late’, ie, after the contract is made. As such they would be unenforceable.

However, the parties have dealt with each other many times before. Dan can accordingly argue that the clauses can be treated as incorporated based on the parties’ course of dealings (Spurling v Bradshaw). This is because the parties are deemed to have intended that the clauses form part of their contract.

The course of dealing has been consistent (satisfying the requirement set out in McCutcheon). Have the dealings been sufficient in number? (Hollier v Rambler: 3 or 4 contracts over 5 years insufficient; Kendall v Lillico: 100 over 3 years sufficient). NB Lord Devlin’s view in McCutcheon that the customer must be shown to have had actual knowledge of the term probably goes too far).

If we assume clauses are incorporated, then

(ii) do they, properly construed, cover the liability which prima facie has arisen?

Clause 1 makes no mention of negligence. The courts have historically been hostile to clauses excluding liability for negligence. If negligence is not expressly mentioned and the clause could apply to other liability the court may hold that the clause does not extend to negligence (see eg Lord Morton in Canada Steamship case). Even if there could be no other liability, cases such as Hollier v Rambler Motors show that the clause may not be construed as excluding negligence liability. Arguably the courts have gone too far (particularly now since greater protection under UCTA). The HIH Casualty case arguably shows a more tolerant approach by the courts.

Here negligence appears to be the only liability, and so the clause would probably be construed as covering it.

Clause 2 clearly seems to cover the liability that has arisen.

Clause 3 can be ignored: the terms implied by s14 SGA are conditions not warranties (see s 14(6)).

If we assume clauses 1 and 2 cover the liability, then:

Step four: are they nevertheless unenforceable under the relevant legislation?

NB we can ignore the Consumer Rights Act 2015 as Cato is not acting for purposes outside his trade, business or profession. Turning then to UCTA:

By virtue of s 2(1), Dan cannot rely on clause 1 to exclude his liability for personal injury resulting from negligence. Cato can therefore claim damages for pain and suffering and loss of amenities and the consequential financial loss (ie, cost of medical care).

Turning to clause 2, you should first note that it is an exclusion clause within the meaning of UCTA as it makes Dan’s liability subject to restrictive conditions (see s 13 (a)).

Second, by virtue of s 6(1A) liability for breach of the terms implied by s 14 SGA can be excluded in so far as clause 2 satisfies the requirement of reasonableness.

Third, s 11 sets out the test of reasonableness: was the term a fair and reasonable one to have been included having regard to the circumstances known to or which ought to have been known to Cato and Dan when the contract was made.

Fourth, because we are concerned with reasonableness under s 6(1A), the court will take into account the factors set out in Schedule 2 to UCTA. Briefly these are:

(i) relative strength of parties’ bargaining positions;

(ii) did Cato receive an inducement to agree to clause 2;

(iii) did Cato know, or ought he reasonably to have known, of the existence and extent of clause 2;

(iv) was it reasonable at the time of the contract to expect Cato to comply with the requirement in clause 2 to notify Dan within 7 days of installation (NB this is obviously relevant here);

(v) were the goods adapted to Cato’s special order;

On balance it seems likely that the exclusion clause will not be deemed reasonable. Accordingly, Cato can also claim for property damage and the replacement cost of the fryer.

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