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Published: Fri, 02 Feb 2018

Exemption clauses as terms of the contracts

This question concerns with exemption clauses. Exemptions clauses are terms in a contract which limit or exclude liability for breach of contract or for a tort committed or for misrepresentation made. Exemptions clauses may also be inserted into a contract to limit the compensation or remedies for breach of contract. In this question, there are two exemption clauses. The first clause excludes the management of Buzz Shopping Centre from responsibility for any injury caused to visitors or for any loss or damage to their personal belongings howsoever caused while on the premises. The second clause exempts Gents’ Outfitters from liability for the quality of any goods sold. The first issue is whether these respective exemptions clauses were incorporated as terms of the contracts between Buzz Shopping Centre and Gents’ Outfitters on one hand and Martin on the other.

If Buzz Shopping Centre and Gents’ Outfitters rely on their exemption clauses, they must show that the clauses were incorporated in the contracts and that, on their true construction, they covered both the breach which have occurred and the resulting loss or damage to Martin. An exemption clause can be incorporated in a contract by a signature, notice or in the course of dealing. It would appear that the most likely incorporation of both exemptions was by way of notices displayed at the entrance of Buzz Shopping Centre and at the exit of Gents’ Outfitters because Martin did not sign any documents in the two contracts and the facts do not indicate that there was a course of dealing between the parties.

If the exclusion clauses were displayed where the contracts were made, they will be incorporated in the contract only if Martin either knew that the notices contained or were likely to contain such clauses [1] or if reasonable notice of their existence was given to him. Whether the notices were given to Martin, would depend on such factors as the nature of the notice, degree of the notice, steps taken to give the notices, the time the notices were given and the nature of the clauses. The exemptions clauses would not be incorporated in the contracts if the notices were not intended to have contractual force. [2] However, the notices will have effect if Martin knew that they were intended to be contractual or if they were displayed in such circumstances as to give him reasonable notice of the fact that they contained conditions. [3] They would also be contractual if it was obvious to a reasonable person that they must have been intended to have this effect. Buzz Shopping Centre and Gents’ Outfitters do not need to show that they actually bought the exclusion clauses to the notice of Martin, but only that they took reasonable steps to so. [4] 

The question whether adequate notice was given to Martin turns principally on two factors: the steps taken by Shopping Centre and Gents’ Outfitters to bring the notices to Martin. [5] With regard to Buzz Shopping Centre, it seems that the clause was incorporate because Buzz Shopping Centre did all that was reasonably necessary as a matter of ordinary practice to call attention to the notice by displaying it on a large sign at its entrance. However, with regard to Gents’ Outfitters, although the notice was displayed in a sign, it was half covered by a rail of men’s suits which could have affected its visibility. Gents’ Outfitters did not take reasonable steps to remove the rail of men’s suits which covered half of the clause to bring the notice to Martin’s attention. It is immaterial whether Martin did actually spotted, read or understand the sign which was half covered by a rail of men’s suits.

In addition, the steps required to give notice of an exemption clause must be taken before or at the time of the contracting. [6] Since the contract was made inside the Gents’ Outfitters when Martin bought the winter coat, the sign by the shop’s exist could not have been seen by Martin until when leaving the shop. Its terms were therefore not incorporated as it was simply too late to add them to the contract. Further, Gents’ Outfitters cannot rely on the exclusion clause because the sale assistant induced Martin to buy the winter coat by misrepresenting that made of 100% cashmere whilst in fact it contained but it contained 15% polyester and 85% cashmere. [7] Accordingly, Martin is advised that whilst Buzz Shopping Centre’s exemption clause was incorporated in the contract, Gents’ Outfitters’ exclusion clause was not. Therefore, Gents Outfitters’ cannot deny responsibility for Martin’s skin rash because the claim is not protected by the purported exclusion clause.

If Buzz Shopping Centre’s exclusion clause is incorporated in the contract, the next issue is whether it survives under the Unfair Contract Terms Act 1977 (UCTA 1977). The UCTA 1977 deals with both non-contractual notices and contractual terms. Most of its provisions apply only to business liability, i.e. liability for breach of obligations or duties arising from things done or to be done by a person in the course of a business, or from occupation of premises used for business purposes by the occupier. [8] Protection is also dependent upon deals as consumer which is defined as consumer if s/he neither makes the contract in the course of business, nor holds himself to be so. [9] 

Many provisions of the UCTA 1977 limit the effectiveness of clauses that exclude or restrict liability. Section 2(1) provides that any attempted exclusion or restriction of business liability for death or personal injury which is caused by negligence is void. Negligence is defined as including breach of any obligation, arising from the terms of a contract, to take reasonable care. [10] This means that for the purpose of the UCTA 1977, certain breaches of contracts are treated as negligence. Therefore, Buzz Shopping Centre cannot, by the notice placed at its entrance, exclude or restrict its liability for the personal injury suffered by Martin which was caused by its cleaner’s negligence for failing to mop up a milk shake spilt by a visitor. Neither Buzz Shopping Centre can rely on the notice excluding liability for the breach of Occupiers’ Liability Act 1957 (Occupier Liability duty of care) which caused personal injury to Martin. According to section 11(4) regards would be made to the resources available to Buzz Shopping Centre which it could expect to be available to it for the purpose of meeting the liability and how far it was open for Buzz Shopping Centre to cover itself for insurance.

Sections 6 and 7 contain additional provisions dealing with attempts to avoid liability where the ownership or possession of goods has been passed. As against a person dealing as consumer, liability for breach of satisfactory quality, fitness for purpose, conformity with description or sample cannot be excluded or restricted by reference to an exemption clause. [11] Assuming that Gents’ Outfitters’ exclusion clause was incorporated in the contract, it would have been automatically ineffective irrespective of reasonableness. In other words, liability for breaching the implied terms in the Sales of Goods Act 1979 concerning the description of goods, in the case the winter coat, could not have been excluded as Martin was dealing as a consumer. Section 2(2) states that any attempted exclusions, etc of business liability for other loss or damage caused by negligence is only valid if the clause satisfies the requirement of reasonableness. According to section 11(1), the reasonableness test would apply “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”.

It also worth mention to Martin about the Consumer Contracts Regulations 1999, which is based on an earlier EC Directive on Unfair Terms in Consumer Contracts. The 1999 Regulations overlap with the UCTA 1977 and are broader in some respects, narrow in others. They apply to only to consumer contracts, [12] whether oral or in writing, which are contracts made between a seller or supplier and a consumer. Any non-negotiated term in a consumer contract can be challenged as an unfair term apart from the core terms as to price and products. Unlike, the UCTA 1977, the 1999 Regulations apply to contracts to property and interest in property. More importantly, the 1999 Regulations are not confined to exclusion clauses, but catch almost any sort of unfair term in a non-negotiated consumer contract.

Simply to deprive the exemptions clauses of legal validity might be a whole ineffective means of control. Martin might believe that he was bound by the exclusion clauses and so not to pursue his claim. Even, if he did make a claim, Buzz Shopping Centre and Gents’ Outfitters might settle it so as to avoid a judicial declaration of invalidity, and then continue to use the clauses. To remedy this situation, Martin might wish to use other legislative techniques which have been devised. These include the use of administrative control which involves the intervention of a public authority with powers such as the Office of Fair Trading (OFT) to enforce certain legislation by considering any complaint made to it. If for example, the OFT consider the exclusion clause to be unfair, it may apply to the court for injunction to restrain the use of the term and the court may grant the injunction as it thinks fit.

Therefore, based on the law examined above, Martin is advised that neither the Buzz shopping centre nor Gents Outfitters can avoid responsibility for his injuries and skin rash because both claims were not protected by their respective exclusion clauses. Gents Outfitters was not incorporated in the contract. Even if it was incorporated, it would have been automatically ineffective irrespective of reasonableness under the UCTA 1977. Although, the Buzz Shopping Centre’s clause was incorporated in the contract, it does not survive under the UCTA 1977 as the Act automatically invalidates purported exclusions of negligence liability causing injuries.

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