BetterLawNotes-5 (2)

CONTRACT LAW

To advise Otto, we need to:

(i) identify the losses, compensation for which is being claimed;
(ii) establish whether, apart from his terms and conditions, he would have any contractual liability for these losses, ie liability for breach of contract;
(iii) establish whether his terms and conditions are effective to exclude or limit any liability which would otherwise arise.

The first step is to identify the relevant losses. Frieda has suffered personal injury and property damage from the exploding boiler. She has also suffered property damage, ie harm to the cat, as a result of the falling tile. Separately, Aunt Agatha has suffered property damage, the damage to the motorbike.

The second step then is to consider whether Otto would be liable for these losses apart from his terms and conditions. (If there would be no liability in the first place, there is no need to consider his terms and conditions).

We may deal as a preliminary point with the damage to Agatha’s motorbike. Even if we assume that the damage to the bike has been caused by Otto’s breach of contract, Otto will have no liability to compensate Frieda for such damage, as Frieda herself has suffered no loss: it is not her motorbike. Further, this is not an exceptional type of contract where the claimant can recover loss suffered by a third party (eg Jackson v Horizon Holidays). Nor would Agatha appear to have any claim under the Contracts (Rights of Third Parties) Act 1999. While Agatha may have a claim in tort, any such liability lies beyond the scope of this question (which refers to ‘contractual liability’).

Turning to Frieda’s losses, contractual liability arises where there has been an actual breach of a term or terms of the contract or an anticipatory breach. On the facts, anticipatory breach is not relevant, so we are looking at actual breach of a term or terms. It is helpful to bear in mind that we are considering liability for the particular losses that have been suffered. We are therefore seeking to identify terms the breach of which has caused the losses suffered: ie, principally, personal injury and damage to Frieda’s belongings, and to the heater itself, and harm to the cat (ie the vet’s bill).

Contractual terms may be express or implied. There appear to be no relevant express terms. As for implied terms, it is relevant that the contract is one for work and materials. Further, it seems reasonable to assume that Otto is acting in the course of a business and that Frieda is not acting in the course of a business. In other words, Otto is a trader and Frieda is a consumer., within the meaning of the Consumer Rights Act 2015 (CRA).

As such, by virtue of s 9 of the CRA, a term will be implied that goods supplied will be of satisfactory quality. Clearly, the heater is not of satisfactory quality. Note that liability for quality is strict: it is irrelevant that the defect was hidden and that the fault was that of the manufacturer not Otto. The implied term has accordingly been breached and this breach has caused the injury to Frieda, the loss of the heater itself as well as damage to the belongings. Subject to his terms and conditions, Otto would be liable for these losses.

By virtue of s 49 CRA, a term will be implied that Otto will carry out the work with reasonable care and skill. Otto’s failure to use reasonable care and skill when attaching the roof tiles therefore also amounts to a breach of contract. That breach has caused injury to the cat and the expenditure at the vet’s. Again, subject to his terms and conditions, Otto would be liable for this loss.

The third step is to consider whether Otto’s liability is limited or excluded by his terms and conditions. To be effective, the terms must have been incorporated into the contract. While Frieda signed the Schedule of Works document, her case can be distinguished from L’Estrange v Graucob because here the terms are not set out in the signed document, merely referred to.

Following Interfoto v Stiletto, Otto will have to show that he took reasonable steps to bring his terms to Frieda’s attention. Following Interfoto, Otto may argue that his terms are neither unusual nor onerous, and that accordingly he has done enough to bring them to Frieda’s notice, such that it was reasonable for him to think that she was agreeing to be bound by them.

As far as their interpretation goes, it seems clear that Clause 1 is sufficient to cover the liability for the property damage connected with the heater. It might be argued that, construing the clause contra proferentem, ‘loss or damage’ is not sufficiently clear to cover personal injury, injury to the person being different in kind from, and more serious in nature than, loss or damage (which is arguably confined to money or property). On this basis, Clause 1 would not be effective to cover personal injury and so Otto would be liable for Frieda’s bodily injuries.

Clause 2 is sufficient to cover the damage from the falling roof tiles as it expressly refers to ‘negligence’: see, eg, Rutter v Palmer. Note that the clause does not purport to exclude liability for negligence altogether, but purports to limit it to £100.

As far then as the position at common law is concerned, it seems that Otto would have no liability as regards the loss of the heater or the damage to the belongings, and that his liability for the vet’s bill would be limited to £100. His liability for Frieda’s personal injury is less clear.

Turning to the statutory controls, Frieda can rely on the CRA. S 31 states that a term is not binding to the extent that it would exclude liability arising under s 9 (ie that goods will be of satisfactory quality). As such, Clause 1 is ineffective and can be ignored. Otto will therefore be liable for Frieda’s personal injury, the damage to her belongings, and the cost of repairing/replacing the boiler as all these resulted from the boiler not being of satisfactory quality. (Note that s 65(1) is not relevant here as Frieda’s injury arises from breach of the (strict) term as to quality of the goods and not from negligence).

Furthermore, Clause 2 would appear not to be binding on Frieda because of s 57 CRA. The effect of s 57 seems to be that a clause which limits liability for negligence to a sum which is less than the contract price is unenforceable. As the contract price was £75,000 and Clause 2 limits liability to £100, Otto would be liable for the entire amount of the vet’s bill.

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