Advise the parties of their claims and liabilities

In this scenario Penelope has bought a garden shed, at a reduced price, from a supplier.  She arranges for the shed supplier to deliver and assemble the shed behind her shop by signing a form. Two days after the shed has been delivered the shed collapses and falls upon Penelope, causing her injury, resulting in her being unable to earn income from her shop for six weeks, as well as the shed itself being destroyed beyond repair.  The supplier, Flowerland, upon being informed of the collapse and injury, draws Penelope’s attention to a provision on the form that she signed when making the order that advised that the supplier does not accept loss, damage or injury caused by their products. 

It is not clear from the information provided whether the form is contractual in nature, a delivery notice, or some other acknowledgement or receipt that Penelope is asked to sign.  Penelope appears to have purchased the shed for private purposes, and not for any use of the business, other than to tidy up the yard behind the shop. 

This is a matter in contract law examining the validity of a disclaimer in the terms of contract or notice denying liability for damages.  A disclaimer, also known as an exemption clause, is a term of a contract intended to exclude or limit liability.  Where limitations are made on the terms of a contract there is often room left open for a party to act unreasonably or negligently without the consequences that may have been applied had the limitations not been made.  Clauses which have the effect of allowing one party to act unreasonably or negligently to the other party in a consumer contract without consequence are likely to be seen as unfair, and contracts containing clauses which provide for such exclusion may be considered legally invalid and ineffective. 

Disclaimers may be considered fair and effective where the exclusion clause qualifies liability or harm and the supplier, or a factor out of the control of the supplier, is at not excluded by the clause.  Additionally where a disclaimer recognises particularly risky activity in the contract, and requires that sensible precautions are taken, may also be considered fair.  A business selling goods to consumers is bound by law to have accepted implied obligations irrespective of the provisions of the contract.  Where the contract terms do not provide full compensation for the supply of misdescribed or defective goods, such contracts may be considered unfair and hence void and unenforceable.  Additionally such disclaimers may misleadingly state a consumers rights under statute. Such statutes include the Misrepresentation Act 1967. 

The Misrepresentation Act 1967 provides in section 3 that any term in a contract which restricts or excludes liability or remedies for representation ‘shall be of no effect except insofar as it satisfies the requirement of reasonableness as stated in in section 1(1) of the Unfair Contract Terms Act 1977’.  The clause then must come within the scope of section 3, and it must satisfy the requirement of reasonableness.  If it does so, then the effect is that exclusions of liability are within the scope of section 3, and ‘no representation’ or ‘no reliance’ clauses are with the scope of section 3, and any entire agreement clause which prevents any collateral warranty is outside the scope of section 3.

It is possible that Penelope could claim negligence on the part of Flowerland, and they may cite the terms printed on the form to deny liability for any negligence.  Excluding liability for negligence should be made expressly in the contract, which is then subject to the Unfair Contract Terms Act 1977.  Contractual terms for this purpose which are not express may be found to be ineffective. The Unfair Contract Terms Act 1977was introduced with the intention of declaring some exclusion clauses ineffective and ensuring others were subject to a reasonableness test (provided for in section 11 of the Act).  Part I of the Act applies to England, Scotland and Wales, and Part II to Scotland.  The Act comes into effect when it has been shown that a defendant is in some fashion liable in negligence to the claimant.  It is not clear where Penelope has her shop, but the Act covers the whole of the UK.      

The term negligence includes both contractual negligence, in the sense of a breach of a contractual duty to exercise reasonable care, and also negligence in Tort, both of which Penelope may explore.  As the Act is therefore broader in scope than strict breach of contract, it can apply to notices which have a clause seeking to exclude liability for negligence, even in the absence of a contractual relationship.  Section 2 of the Act provides for liability arising from negligence (provided for in section 1(1) of the Act), and section 3 from breach of contract. Section 2 applies both to contract terms and to notices, which would include any form of document that Penelope received.

Sections 5 and 6 address liability arising from the sale or supply of goods.  Sale or supply includes the manufacture and distribution of goods to a consumer (defined in section 12).  Section 5 provides that a manufacturer or distributer cannot exclude or restrict ‘by reference to any contract term or notice contained in or operating by reference to a guarantee of the goods’.  Section 6 addresses sale and hire-purchase of goods.  This section advises that where the buyer is a consumer, the seller cannot exclude from the implied terms of the contract liability for breach.

The disclaimer in this case is clearly an exclusion clause, rather than one which would restrict liability.  The use of the word ‘negligence’ expressly in a contract in an exclusion contract may be sufficiently express to exclude liabilty, but less express words such as ‘loss however arising’ may still be express enough to exclude liability for negligence, as was held in Rutter v Palmer and Alderslade v Hendon Laundry Ltd. In Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71, Salmon LJ made clear that “a clause excluding liability for negligence should make its meaning plain on its face to any ordinary literate and sensible person.  The easiest way of doing that, of course, is to state expressly that garage, tradesman or merchant, as the case may be, will not be responsible for any damage caused by his own negligence.”  It was held in Fujitsu Services Ltd v IBM United Kingdom Ltd that an exemption or limitation of liability clause should be approached in the same way as for any other contractual term.  In doing so, the party depending upon the clause for exclusion should:

“show that the clause, on its true construction, covers the obligation or liability which it purports to restrict or exclude. If there is an exception to the exemption, then the burden rests upon the claimant to establish that his case falls within the exception. But the form is not conclusive and the matter is in every case a question of construction of the instrument as a whole …”

Conclusion

Penelope should be advised of her rights to claim for the injuries sustained both in contract and tort, and the replacement of her shed, as well as lost income.  The supplier, Flowerland (hereafter ‘the defendant’), should be advised regarding their defence to Penelope’s claims as well as their likely liabilities should she succeed in her suit against them.

Penelope can approach her defence in a manner similar to that of the plaintiff in the Court of Appeal in Phillips Products Ltd v Hyland. In that case Slade J for the court addressed the case on the following issues.  First he considered the applicability of the Unfair Contract Terms Act 1977.  He held there that if the claim is based in contract then negligence for the purposes of s1(1)(a) can only have occurred if there has been a breach of ‘any obligation, arising from the express or implied terms of a contract, to take reasonable care or exercise reasonable skill in the performance of the contract’.  If, in the case of any such claim, the contract by its express terms excluded liability for negligence, there cannot have been any breach of such an obligation to exercise due care.  However, in this case, as in Phillips Products Ltd v Hyland, the claim is of the nature of common law duty to take reasonable care within the meaning of section 1(1)(b).

Slade J argued that the court must, in considering whether there has been a breach of an obligation of the nature described in section 1(1)(a) or a duty as referred to in (b) or (c) , the court has to disregard the term of the contract which is relied upon as defeating the plaintiff’s claim for breach of such obligation.  He notes that section 13(1) of the Act makes clear that section 2 is ‘capable of negating the effect of contract terms which purport to exclude or restrict the relevant obligation or duty’.

Penelope would likely fall with the definition in 12 of the Unfair Contract Terms Act as a consumer as she can argue that she did not make the contract in the course of business, nor hold herself out as doing so, whilst the other party does make the contract in the course of business.  It is likely that the shed purchased can be considered of the type ordinarily supplied for private use of consumption.  The fact that Penelope intended to use the greenhouse to relax in with a coffee shows that her intention was not to purchase the greenhouse shed for commercial purposes, as was her intention to use it to tidy up the yard at the back of the shop, an activity not directly related to her business. 

The plaintiff can attempt to argue that there is no breach of contract as the implied or express terms of the contract did not fall within the scope of the Misrepresentation Act 1967 or the Unfair Contract Terms Act 1977.  To do so they would need to establish that there is no negligence as defined in subsections (1) and (4) of the Unfair Contract Terms Act 1977.  Section 1 of the Act defines the scope of the legislation, and assumes that a liability has arisen on the part of the defendant due to a breach of an obligation to use reasonable care.  Accordingly if the existence of a duty of care cannot be established, then any clause in the contract that has the effect of negating the existence of a duty of care would put the clause outside the scope of section 1 and hence the legislation.  If there is no breach and a duty of care is not owed then there is nothing to which the Act may apply.

The plaintiff must succeed in establishing that there has been a breach of duty of care by Flowerland.  This is likely to succeed as the delivered product was bought by the plaintiff as a consumer, and the shed proved to be defective upon delivery and assembly by the defendant.  The defendant had a common law duty of care to deliver and assemble the shed as represented, and breached that duty of care by both delivering a shed that was not integral as advertised, and was not assembled correctly as required.  Accordingly it is likely that the defendant would fall within the scope of the Unfair Contract Terms Act 1977, and the disclaimer on the form cannot be relied upon to avoid liability.  Additionally under section 2 it is immaterial that the form is a notice or a contract.  The plaintiff will only likely succeed if they can show that they did not have a duty of care that would cause them to fall within the scope of the Unfair Contract Terms Act.

Bibliography

Chen-Wishart M, Contract Law (Oxford University Press, 2012).

McKendrick E, Contract Law: Text, Cases and Materials (6th Ed., Oxford University Press 2014).

Office of Fair Trading, Unfair contract terms guidance: Guidance for the Unfair Terms in Consumer Contracts Regulations 1999, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/284426/oft311.pdf.

Cases

Alderslade v Hendon Laundry Ltd [1945] 1 KB 189.

Fujitsu Services Ltd v IBM United Kingdom Ltd [2014] EWHC 752 (TCC), [2014] 1 C.L.C. 353.

Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71.

 

Raiffeisen Zentralbank Osterreich AG (RZB) v Royal Bank of Scotland PLC (RBS) [2010] EWHC 1392.

Phillips Products Ltd v Hyland [1987] 1 WLR 659

Rutter v Palmer [1922] 2 KB 87.

Legislation

Misrepresentation Act 1967

Unfair Contract Terms Act 1977

Footnotes

Office of Fair Trading, Unfair contract terms guidance: Guidance for the Unfair Terms in Consumer Contracts Regulations 1999, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/284426/oft311.pdf, 18.

Chen-Wishart M, Contract Law (Oxford University Press, 2012), p239.

Ewan McKendrick, Contract Law: Text, Cases and Materials (6th Ed., Oxford University Press 2014), p411.

Ewan McKendrick, Contract Law: Text, Cases and Materials (6th Ed., Oxford University Press 2014), p417.

[1922] 2 KB 87.

[1945] 1 KB 189.

[2014] EWHC 752 (TCC), [2014] 1 C.L.C. 353.

[1987] 1 WLR 659.