Exclusion Clause Contract Law

The problem in the scenario requires a discussion of the law relating to exclusion clauses. An exclusion clause is a clause included in a contract to either limit or exclude liability of a party in breach of the agreement.

Joey is reliant on the clause to avoid liability for Sandeep's injury which was sustained on his premises. However Joey can only rely on the clause if it has been incorporated into the contract. There are two ways in which an exclusion clause can be incorporated into a contract; either signed (L'Estrange v Graucob) or unsigned. Sandeep did not sign a contract therefore as the contract was unsigned the terms will only form part of the contract if reasonable steps were taken to bring it to the attention of the other party before the contract was made(Olley v Marlborough Court Hotel). It appears that Joey took reasonable steps to bring the terms of the contract to Sandeep's attention before the contract was formed; this was as she rung to book a reservation. While making the reservation Joey stated that reservation was subject to “standard terms and cancellation policy”. The actual content of the terms are not necessary, however notice of the existence of terms is normally required: Thompson v LMS 1930.

Alternatively the exclusion clause could be incorporated by a course of dealings: J Spurling v Bradshaw 1956 as Sandeep had dined at the restaurant on many occasions it is reasonable to assume that she was aware of the terms, however her attendance to the restaurant must have been be with a consistent course of action McCutcheon v MacBrayne 1964.

The exclusion clause was placed in a prominent position at the entrance of the restaurant which customer's would have seen entering the restaurant before the formation of the contract The same clause also appeared in the menu which Sandeep would have seen read whilst ordering and presumably the point of contract. It is indisputable that Joey took reasonable steps to bring the exclusion clause to Sandeep thus incorporating the term.

Once it has been established that an exclusion clause has been incorporated it is then considered whether the clause covers the breach that has occurred. The basic approach is that liability can only be excluded by plain words. If the language used is somewhat ambiguous, then the contra proferentem rule would be used to interpret the wording in favour of the party claiming damages. However where negligence is concerned, comprehensible words must be used. When implying the term negligence, the use of the ‘negligence' or the phrase ‘howsoever caused' would suffice: Smith v South Wales Switchgear 1978. Two criteria were developed from this case in reference to negligence: 1. “If the clause expressly refers to negligence, or uses a synonym for negligence it will be effective”. 2. “In the absence of such express reference, if the words are wide enough to cover the clause may nevertheless be effective, unless here is some liability other than negligence to which the words would apply”. The use of the word ‘negligence' satisfies the first criteria rendering the clause effective for the breach.

Lastly the clause must comply with statutory provisions set out to restrict the degree to which liability in an agreement can be excluded for breach of contract and negligence. This is mostly achieved by either rendering certain clauses invalid and by subjecting others to a test of reasonableness. Two sets of legislation govern exclusion clauses; the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contract Regulations 1999. The most appropriate provision to look at in this case would be section 2 of the UCTA; this section of the act deals with exclusion of liability for negligence. s2 (1) of the Act invalidates any attempt by a contract term or notice to “exclude or restrict liability for death or personal injury resulting from negligence”. This provision would therefore render the exclusion clause invalid. The UTCCR would take a similar approach and the outcome would be the same; however it is advisable for Joey to use the UCTA as it is more specific in regards to personal injury and therefore the better provision to rely upon.

When advising Joey as to whether he would be successful in claiming damages of £2000, it is important to consider whether the terms were incorporated into the contract. As contract was formed by Joey signing the agreement, the terms would have been incorporated validly into the contract.

The clause in its self is written in clear English and uses the phrase ‘howsoever' which is an apparent synonym for negligence, thus satisfying the criteria set in Smith v South Wales Switchgear Ltd HL 1978. The usage of simple English and relevant wording authenticates the clause; covering the breach.

Once again, we must look at the UCTA rather than the UCCTA , this is because Joey is not a consumer as defined in S12 of the UCCTA but is dealing with Refresh Ltd in the course of business. As the engineer had carelessly used the incorrect mixture causing the damage we must again look at s2 of the UCTA given that we are still dealing with negligence. S2(2) further provides that “in the case of other loss or damage, a person cannot so exclude or restrict his liability for negligence except in so far as the term of notice satisfies the requirement for reasonableness”. Section 11 clarifies reasonableness, stating that the test is whether the clause is fair and reasonable “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”. The courts maintain an ample discretion under the Act to determine whether a particular clause satisfies the test of reasonableness. S11(4)specifies that if liability is restricted to a specific sum of money, regard shall be had in particular to “the resource which he could except to be available to him for the purpose of meeting the liability will arise” and “how far it was open to him to cover himself by insurance”. This provision was designed to alleviate undue hardship to small businesses and may do exactly this as in Joey's case. Joey contacted Refresh Ltd as a matter of urgency which meant he did not have time to shop around and it can also be acceptable that it would have been difficult to insure in such a short space of time. S11 (5) explains that the burden falls on the party seeking to rely on the clause; It is Refresh Ltd that bears the burden to show that the clause incorporating in the contract was in fact reasonable. In applying the test of reasonableness illustrated in S11 (4) it is likely that Joey would be successful invalidating the clause.