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4.2.3 Exclusion Clauses Lecture – Hands on Example

After reading the detailed version of this chapter, you should be completely familiar with what an exclusion clause is, how they can be incorporated into contracts, and their limitations. This section will provide you with a problem style question in which you can test your knowledge. Don’t be discouraged if you are unsure of the answers at first, just attempt to identify the relevant issues and if required you can refer back to the detailed version in order to consolidate your knowledge.

A question involving an exclusion clause should usually be very easy to identify. There will be a contract which includes one or multiple terms aiming to limit or exclude liability of some sort. In order to address a question involving exclusion clauses, a proposed approach would be:

  • Has the clause been incorporated into the contract?
  • Has the clause passed the test of construction?
  • Is there any legislation which will render the clause unenforceable?

The most significant consideration is whether or not the clause has passed the test of construction. As we have already explored incorporation into the contract in the previous chapter, this problem scenario will focus solely on the construction and the limiting legislation.

Scenario

Heather owns a bakery business; she sells an assortment of cakes, biscuits and pastries and delivers them. Heather is new to the business and has attempted to draft her own contracts. She included a number of clauses in her different contracts excluding various types of liability.

  1. Contract one is with Shirley, who wants an assortment of cakes for her birthday party. When Shirley viewed the cakes, she was concerned about the delivery, as the road to Shirley’s house is extremely bumpy. When Shirley questioned the delivery, Heather said “Don’t worry! If any of the cakes are damaged I will replace them”. All of the cakes were damaged during delivery. Heather is attempting to rely on a clause in the contract which states “The seller excludes liability for all damage to the product during delivery”.

Focusing only on matters of construction, can Heather rely on this exclusion clause?

  1. Contract two is with Ben, who has purchased a number of biscuits. Ben shared the biscuits with a friend. Tragically, Ben’s dog died after being fed the biscuits. An autopsy revealed there was a deadly poison present in the biscuits. Ben decides to sue Heather for negligence, but there is a clause in the contract which states “the seller is not liable for any death or personal injury arising due to the negligence of the seller”.

Focusing only on matters of construction, can Heather rely on this exclusion clause at all? If so, will it exclude liability relating to the death of a dog?

  1. Contract three is with another business, ThriftClothes. Heather is selling a variety of her old clothes to them in order for them to sell them on. Heather has included an exclusion clause which excludes liability for the quality of the clothes. ThriftClothes are unhappy with the clothes as they are unsellable due to poor quality.

Focusing on limiting legislation, can Heather rely on this exclusion clause?

  1. The issue with this exclusion clause is that it is inconsistent with an oral agreement; Heather’s agreement to replace any cakes damaged during delivery. The case of J Evans & Son (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 WLR 1078 is authority that states the oral agreement takes precedent, therefore the exclusion clause would not apply and Heather could not rely upon it. This means Heather will have to replace the damaged cakes.
  1. There are two issues to address in this question. Firstly, is it even possible that Heather can exclude liability for negligence? As per the case of Canada Steamship Lines v The King, if a clause excludes liability for negligence expressly, using the word ‘negligence’ or a synonymous word, the exclusion clause will be valid. Therefore, this exclusion clause is valid as negligence is expressly referred to.

The second issue is whether the damage caused is actually damage that is covered under the exclusion clause. The exclusion clause is silent as to whether it refers to death or personal injury of humans only, or it could extend to animals too. The fact that the clause is silent as to this means it is ambiguous. Therefore, the court will apply the ‘contra proferentum’ rule, and interpret the clause against the party relying on the clause, Heather in this case. As a result, the clause will be presumed only to exclude liability for the death or personal injury of humans, and not dogs, meaning Heather could not rely on the exclusion clause.

  1. The first step in answering this question is to determine whether the contract has been made in the course of business, as per Section 1(3) of the Unfair Contract Terms Act 1977. The test to apply is from R&B Custom Brokers Co Ltd v United Dominions Trust Ltd, ‘does the contract form an integral part of the business?’ In this case, Heather is selling clothes; therefore the contract is clearly not integral to her bakery business, meaning she is acting a consumer.

Heather is attempting to exclude liability for the quality of the clothes. This would be an exclusion clause limiting a contractual liability, which is dealt with under Section 6 of UCTA. The law is that if the party attempting to enforce liability is not a consumer, the exclusion clause may be valid if it is reasonable. ThriftClothes are the party attempting to enforce liability; therefore the exclusion clause may be relied upon by Heather so long as it is ‘reasonable’.

Section 11 defines ‘reasonable’ as whether the term was fair and reasonable to have been included in the contract in light of all circumstances known at the time of contracting. To this effect, the court will consider factors such as bargaining positions of the parties, inducement to the agreement, whether or not the parties were aware of the existence of the term and if the goods were made specifically at the request of the buyer.

The facts are not conclusive on this point, but it would be suggested that due to the bargaining position of the parties,it would be reasonable for Heather to exclude liability for the quality of the clothes. She is unsure of the required quality, and therefore the onus should be on the company to ensure they are protected under circumstances such as this.


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