There is automatic incorporation of terms in a signed document

3. The Unfair Contract Terms Act 1977 and Unfair Terms in Consumer Contracts Regulations 1999 do not make the exclusion clause void

Incorporation

Signed

- There is automatic incorporation of terms in a signed document.

L’Estrange v Graucob [1934] – A signed document binds the person who signed it regardless of whether he read it (in the absence of fraud/misrepresentation).

Curtis v Chemical Cleaning Co [1951] – Where there was a misrepresentation as to the written term the non-innocent party could not rely on the exemption clause. Why? Could the party who signed the document be said to have been reckless? No, because they read the clause, but sought clarification of what it meant. Also the misrepresenting party was bound by his statement.

Unsigned

- Reasonable and sufficient notice of the exclusion clause must be given. [This means that actual notice need not be given where reasonable and sufficient notice has been given!].

(i) Must be contained in a contractual document i.e. a document a reasonable person would expect to contain contractual terms. A receipt is not usually considered to be such a document.

Parker v South Eastern Railway [1877]:-

Did the recipient of the ticket see or know there were conditions? If yes, he is bound. If not, he is not bound unless the person giving the ticket made it known that there were conditions (impliedly/expressly).

Chappleton v Barry UDC [1940]

- Deck chair case - Ticket contained conditions – was a mere receipt and there was insufficient notice

(ii) The fact that the exclusion clause exists must be brought to the notice of the other party before or at the time the contract is entered into.

Olley v Marlborough Court [1949]

- Here there was a notice on the back of a door in a hotel room saying guests leave valuable items in their hotel room at their own risk. There was no incorporation.

- Effectively the contract had already been considered as concluded by both parties and so this new term in the hotel room was not adequate notice.

(iii) Reasonably sufficient notice of the exclusion clause must be given

Thompson v LMS Railway [1930]

- A ticket referred to conditions and regulations on the timetable – there was successful incorporation.

Thornton v Shoe Lane Parking [1971]

- Claimant drove into defendant’s car park and an automatic machine gave a ticket which said parking was subject to conditions displayed in the car park – the conditions in question were in very small writing, one of which excluded liability for damage to vehicles and injury to customers.

- Lord Denning said “In order to give sufficient notice, it would need to be printed in red ink with a red hand pointing to it – or something equally startling".

Interfoto Picture Library v Stiletto Ltd [1988]

- Claimant ordered transparencies from the defendant. A delivery note which contained a number of conditions. One of the conditions provided a £5 per day holding fee was payable for each transparency retained after 14 days.

- The Court of Appeal held Interfoto had not taken reasonable steps to bring such an unusual, unreasonable and onerous term to Stiletto’s notice.

- Interfoto was awarded £3.50 per week on a quantum meruit basis.

Previous dealings

Spring v Bradshaw [1956] – A previous, consistent course of dealing meant the exclusion clause was incorporated even though insufficient incorporation had been given on this occasion.

McCutcheon v MacBrayne [1964]

- Exclusion clauses were contained in lots of small print contained inside and outside a ferry booking office and in a “risk note" passengers sometimes signed.

- The exclusion clauses were not incorporated, as there was no consistency of dealing, especially given that customers often did not sign the risk note.

Hollier v Rambler Motors [1972]

- Using a garage three or four times over five years did not amount a course of dealing because of the large time gaps.

British Crane Hire v Ipswich Plant Hire [1974]

- There was a common understanding between the two businesses any contract would be on the standard terms being relied on.

Privity of Contract

- A non-contracting party is not necessarily covered, even if the clause purported to extend to him. Employees are regarded in this context as third parties. Why? A non-contracting party unaware of any contractual terms should not be bound.

Adler v Dickinson [1954] – The captain of a ship could not rely on an exclusion clause contained in a contract between P & O and Claimant.

See now – Contract (Rights of Third Parties) Act 1999

Collateral Contracts

- A collateral contract may mean the main contract has to be read in light of this.

The battle of the forms

- Two parties may each argue that their terms apply to an agreement. The rule of thumb here is that the contract will be made on the last set of terms sent i.e. the ones sent immediately before acceptance.

British Road Services v Arthur Crutchley Ltd [1968]

- Here the deliverer gave the recipient terms and conditions, which were stamped as being “received subject to the [recipient]’s terms and conditions. It was held that this was a counter notice meaning the recipient’s terms and conditions applied.

- What is confusing about this case? There is perhaps ambiguity in that there was already a contract to deliver the whiskey!

Interpretation and Construction

The main rules of construction are as follows:-

1. Contra proferentem

Any ambiguity or uncertainty as to the meaning of an exclusion clause will be construed against the party relying on it i.e. the party who inserted it.

Baldry v Marshall [1925]

- An exclusion clause excluding liability for “guarantee or warranty, statutory or otherwise" did not exclude “conditions".

White v John Warwick [1953]

- Faulty cycle led to personal injury.

- A term provided “nothing in this agreement shall render the owners liable for any personal injury". This did not cover liability in negligence.

- Remember this is an old case and now s2, Unfair Contract Terms Act will be more useful.

2. The main purpose rule

A court can strike out an exclusion clause which goes against the main purpose of the contract.

Glynn v Margetson [1893]

- Carriers agreed to transport perishable by ship under a contract which allowed the ship to call at any port in Europe or Africa. The ship took a 350 mile detour to pick up a cargo for another company.

- When the perishable goods arrived they had perished.

- The main purpose of the contract was to deliver a perishable cargo within a reasonably quick time the wide words of the clause could be ignored and the ship could only call at ports en route. The carriers were liable.

3. The doctrine of fundamental breach

Prior to 1964, a fundamental breach could not be excluded or restricted in any circumstances and this became a rule of law.

However, the rule of law was rejected in UGS Finance v National Mortgage Bank of Greece [1964], as it conflicted with freedom of contract and the parties’ intentions. The question whether there could be exclusion of liability for a fundamental breach was held to be a question of construction.

The UGS case was unanimously approved by the House of Lords in the Suisse Atlantic case [1967] and Photo Production Ltd v Securicor Transport [1980].

Unfair Contract Terms Act 1977 and Unfair Terms in Consumer Contracts Regulations 1999

These Acts must be considered if the clause has:-

been incorporated; and

as a matter of interpretation and construction, it extends to the loss in question.

Unfair Contract Terms Act 1977

- Basic purpose of the Act is to restrict the extent to which liability in a contract can be excluded for breach of contract and negligence.

The Act does not apply to:-

Contracts concerning the sale of land

Insurance contracts

Contracts relating to companies

Contracts concerning the sale of shares

Contracts concerning the carriage of goods by sea

International supply contracts

s1(3) – Liability usually arises from things done by someone in the course of business or from the occupation of business premises

s12(1) – A person “deals as a consumer" if he does not contract in the course of a business while the other party does contract in the course of business.

- If it is a contract for the supply of goods, they are of a type ordinarily supplied for private use or consumption.

Peter Symmons & Co v Cook [1981]

- Surveyors bought a car from the defendants as consumers, because buying cars was not the usual part of a surveyor’s business.

s5 – Manufacturer/distributor cannot exclude or restrict liability for loss arising from defects in goods ordinarily supplied for private use or consumption by means of a term contained in a guarantee.

s6(1) – In a contract for the sale of goods and hire purchase the implied terms cannot be excluded or restricted by a contract term.

s6(2) – Implied terms as to correspondence with description or sample, fitness for purpose and satisfactory quality cannot be excluded or restricted… against a person dealing as a consumer.

s10 – Rights preserved under one contract cannot be removed by a secondary contract.

s2(1) – No one acting in the course of a business can exclude/restrict liability in negligence for death or personal injury.

s2(2) – Liability for any other type of loss or damage can be excluded subject to the reasonable test (under s11).

s3 – Exclusion/restriction of liability for breach of contract must meet reasonableness test.

s7 – Clauses relating to title in contracts of hire are subject to the reasonableness test

- The implied terms as to correspondence with description on sample, fitness for purpose and satisfactory quality cannot be excluded or restricted at all in consumer contracts (where the person is not dealing as a consumer, the exemption is subject to the reasonableness test).

s8 – Restriction of liability for misrepresentation is ineffective unless it satisfies the requirement of reasonableness.

s13 – Clauses:-

- Imposing a time limit for making claims

- Limiting a buyer’s right to reject defective goods

- Stating acceptance of goods shall be regarded as proof of their conformity with the contract, etc….

Such clauses are void unless unreasonable

s11(1) – The requirement of reasonableness is that “the term shall have been a fair and reasonable one to be included 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 is made".

s11(2) provides that in determining whether the clause is a reasonable one regard shall be had to….

(1) – The bargaining strengths of the parties and the availability of alternative supplies

(2) – Whether the customer received an inducement to agree to the term.

(3) – Whether the customer knew or ought reasonably to have known of the existence and extent of the term.

(4) – Where the term excludes or restricts any liability if a condition is not complied with; whether it was reasonable at the time of the contract to expect compliance with that condition.

(5) – Whether the goods were manufactured, processed or adapted to the special order of the customer.

s13(2) – In relation to notice given of the existence of the exclusion clause the requirement is that it should be fair and reasonable….

Smith v Eric Bush [1989]

- Mortgage application form and surveyor’s report both contained a disclaimer saying that the surveyor’s report was given without any responsibility and may not be accurate.

- The report said no essential repairs were needed, but in fact a chimney breast had been removed and was not properly supported.

- It was held that under the reasonableness test (s2(2)), it was not reasonable for the valuer to rely on the disclaimer.

Lord Griffiths said in assessing reasonableness all factors should be considered, but the main ones would be:

1. The bargaining powers of the parties.

2. Where advice is given, was it reasonably practicable to obtain advice from another source, taking into account considerations of cost and time?

3. How difficult is the task undertaken for which liability is being excluded?

4. The practical consequences of the decision on the question of reasonableness including the sum of money and ability to pay. This raises the question of insurance.

s11(4) – Where the exclusion clause seeks to limit liability rather than exclude it completely, the court must have regard to two factors:-

The resources available to meet the liability, and

The extent to which insurance cover was available to the party aiming to limit liability

St Albans District Council v ICL [1996]

- Clause limiting liability to £100,000. Loss was £1.3m Clause failed, because:-

1. Unequal bargaining power

2. £100,000 maximum liability was unreasonable when compared to the potential risk and the actual loss

3. The defendants had an aggregate of £50m insurance cover worldwide

4. The defendants could insure more easily than the other party (they had actually done so)

s11(5) – Provides that it is up to the person who claims that a term or notice is reasonable to show that it is.

Unfair Terms in Consumer Contracts Regulations 1999

- Does not apply to any contract where terms are negotiated in any way

These Regulations revoke and replace the Unfair Terms in Consumer Regulations 1994.

The Regulations apply, subject to certain exceptions, to unfair terms in contracts concluded between a consumer and a seller or supplier and provide that an unfair term is one which has not been individually negotiated and which, contrary to the requirement of good faith, causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer. An unfair term shall not be binding on the consumer. Schedule 2 contains an indicative list of terms which may be regarded as unfair.