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Terms and Exemption Clauses - Coggle Diagram
Terms and Exemption Clauses
Express Terms
Orally or in writing
1. Parol Evidence Rule
-
Henderson v Arthur [1907] 1 KB 10
Where a contract has been reduced to writing, the general rule is that oral statements cannot be used as evidence to vary the terms of a written contract
2. Getting around the Parole Evidence Rule
Does not apply to part oral, part written contracts -
Evans & Son (Portsmouth) Ltd v Merzario (Andrea) Ltd [1976] 1 WLR 1078
Collateral contract -
City and Westminster Properties v Mudd [1959] Ch 129
BUT
, not use of entire agreement clauses and no oral modification clauses -
Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] UKSC 24
3. The Incorporation of Express Terms
Interpretation of Express Terms
Courts must give effect to the intention of the parties as objectively determined
'The ultimate aim of interpreting a provision in a contract... is to determine what the parties meant by the language used, which involves ascertaining what a reasonable person would have understood the parties to have meant'' -
Lord Clarke
, in
Rainy Sky SA v Kookmin Bank [2011] UKSC 50
at [14]
Implied Terms
Implied by Courts
: implied in fact
To give effect to presumed intentions of parties
'officious bystander test'
So obvious it goes without saying
Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206
The Business Efficacy test
The Moorcock (1889) 14 PD 6
Is the term necessary for the contract to work in a practical sense? - intention of both the parties
The Construction Test
Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10
What a reasonable person would understand from all the relevant background facts (the context)
Must be necessary to imply a term
Marks & Spencer v BNP Paribas [2015] UKSC 72
- Officious bystander and Business efficacy
Lord Neuberger
:
Reassterted officious bystander and business efficacy tests
Doubted assimilation of implied terms into ordinary process of construction
Implied by Courts
: Implied in law
The implication of terms as a matter of policy into all contracts of a particular type
Liverpool City Council v Irwin [2976] UKHL 1
HoL upheld implied terms of tenancy contract that local council (landlords) were under an implied duty to take reasonable care to keep the common areas reasonably fit for use
Term was implied into all tenancy agreements between tower block tenants and their landlords
Implied by Statute
Sale of Goods Act 1979
Business to business contracts
s13(1): implied term that goods will match their description
s14(2) - implied term of satisfactory quality:
(a) Fitness for purpose they are commonly supplied for
(b) appearance and finish
(c) Freedom from minor defects
(d) safety
(e) durability
s14(3) - implied term of fitness for purpose, if the purpose was made known to seller
The Supply of Goods and Services Act 1982
s13 - implied term to carry out service with reasonable care and skill
The Consumer Rights Act 2015
Consumer to business contracts
s2(3) CRA 2015: 'consumer' = individual acting for purposes that are wholly or mainly outside that individual's trade, business, craft or profession
s11(1) - implied term that goods with match their description
s9(1), (3) - satisfactory quality - (see above, SGA 1979
s10(1) - implied term for fitness for a particular purpose, if purpose is made known to seller
s49 - implied term to carry out services with reasonable care and skill
Implied by Trade or Custom
Term can be implied where previous dealings between parties, and such terms are parties' particular trade of custom -
British Crane Hire Corporation v Ipswich Plant Hire Limited [1975] WB 303
Identifying terms
1. Importance of the Statement
-
Bannerman v White (1861) 10 CBNS 844
2. Special Knowledge of the subject matter
-
Oscar Chess Ltd v Williams [1957] 1 WLR 310
- and -
Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623
Statements - Representations - Terms
Other factors:
Time between statement and contract formation
If the contract has been made in writing
Statement maker in a better position to ascertain the accuracy of the statement
Request to verify the truth of the statement / Assurance - no need to verify truth
Exemption Clauses
Term of contract that seeks to exclude or limit liability
Steps of establishing the validity of an exemption clause:
Party wishing to rely on exclusion clause must prove:
it has been validly incorporated into the contract
The clause is effective to exclude liability for the loss suffered
the clause is valid under UCTA 1977 or the CRA 2015
Basic structure of exemption clause PQ:
1. Identify the breach or other liability (express/implied terms)
Breach of contract?
Negligence?
Others, e.g. Misrepresentation
2. Incorporation
Signature
party is bound by signature, whether they have read terms or not ('signature rule')
'Wholly immaterial whether he has read the document or not' -
Scrutton LJ
in
L'Estrange v F Graucob Ltd [1934] 2 KB 394
Exceptions to the signature rule:
defence of
non est factum
applies -
Thoroughgoo'ds Case (1584) 2 Co Rep 9a
Misrepresentation is Established -
Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805
Canadian approach -
Tilden Rent-A-Car Co. v Clendenning (29781), 83 DLR (3d) 400.
- should we take the same approach?
Notice
Before or at the time of contracting -
Olley v Marlborough Court Hotel [2949] 1 KB 532
- and -
Thornton v Shoe Lane Parking Ltd [1970] EWCA Civ 2
Terms must be contained or referred to in a document intended to have contractual effect or to contain contractual terms -
Chapelton v Barry Urban District Council [1940] 1 KB 532
- and -
Grogan v Robin Meredith Plant Hire [1996] CLC 1127
Reasonable notice must be given of terms
Parker v South Eastern Railway [1877] 1 CPD 416
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1987] EWCA Civ 6
WEBSITES -
Impala Warehousing and Logistics (Shanghai) Co Ltd v Wanxiang Resources (Singapore) PTE Ltd [2015] EWHC 25
'Red Hand Rule'
- 'the more unreasonable a clause is, the greater the notice which must be given of it. Some clauses which i have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient' -
Denning LJ
in
J Spurling Ltd v Bradshaw [1956] EWCA Civ 3
-
The more onerous or unusual the term the greater the steps must be taken to draw its existence to the other party
Previous Dealings
Sufficiently regular and common
Consistent use of terms -
McCutheon v David MacBrayne Ltd [1964] UKHL 4
Regular course of dealings over a sufficient period of time -
Hollier v Rambler Motors (AMC) Ltd [1971] EWCA Civ 12
Custom -
British Crane Hire Corporation Ltd v Ipswich plant Hire [1973] EWCA Civ 6
Burden of proof lies on person seeking to enforce the clause
Must be before or at the time of the contract -
Olley v Marlborough Court Hotel [1949] 1 KB 532
3. Construction
Contra Proferentem
in the event of ambiguity aorund teh meaning of the clause, the ambiguity will be resolved against their party seeking to rely on the exemption clause -
Houghton v Trafalgar Insurance Co Ltd [2951] 1 QB 247
Negligence
to exempt liability for negligence, clear words must be used - if wording could be applied to either negligent or non-negligent liability, there is concurrent liability in the contract and tort, then the clause will generally be confined to the non-negligent source of liability -
Canada Steamship Lines v The king [1952] AC 192
necessary to ask whether the clause covers the type of liability and loss in question
4. Statutory Controls
UCTA 1977
Business to business contracts
Certain clauses are deemed ineffective at the outside, i.e. excluding liability for personal injury
others are subjected to the 'reasonableness test' - and are only valid if the party seeking to rely on the clause can establish that it is reasonable
Person relying on clause responsibility to show that the statute applies
applies to things done or to be done in the course of business and liability arising from occupying business premises (s1(3))
only applies to exemption clauses
Liability for negligence
:
s2(1) - death or personal injury cannot be excluded or restricted
s2(2) - other loss and damage may be excluded or restricted only if the term satisfies the reasonablness test
Sale or supply of goods - Defective products:
s6(1) - implied terms about title cannot be excluded or limited
s6(1A) - implied terms about satisfactory quality, fitness for purpose or sale by description - may be excluded or restricted
only if the term satisfies the reasonableness test
Liability for breach of strict contractual obligation (not sale and supply contracts):
s3 - if contract is non-negotiated then liability may be excluded or restricted, only if the term satisfies the reasonableness test
CRA 2015
'a term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations under the contract to the detriment of the consumer' - s6(4)
Cannot exempt liability for death or personal injury
The reasonableness test:
s11 - 'term shall have been 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 was made;
s11(4) - 'the resources which he could expect to be available to him for the purpose of meeting the liability should it arise; and how far it was open to him to cover himself by insurance'
St Albans City and DC v International Computers Ltd [1996] EWCA Civ 1296
Photo Production Ltd v Securicor Transport Ltd [1980] UKHL 2
'Guidelines' for application of the test
Contractual Interpretation
Interpretation of Express terms
'The ultimate aim of interpreting a provision in a contract... is to determine what the parties meant by the language used, which involves ascertaining what a reasonable person would have understood the parties to have meant'' -
Lord Clarke
, in
Rainy Sky SA v Kookmin Bank [2011] UKSC 50
at [14]
Courts must give effect to the intention of the parties as objectively determined
Approaches
Old Approach
- Literalist/Textualism
'acording to the ordinary grammatical meaning of the words use therein, and without reference to anything which has previously passed between the parties to it' -
Cozens-Hardy MR
, in
Lovell & Christmas Ltd v Wall (1911) 104 LT 85
Modern Approach
- Contextual or Purposive
'In a commercial contract, it is certainly right that the court should know the purpose of the contract, and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating...' -
Lord Wilberforce
in
Reardon Smith Line Ltd v Yngvar Hansen-Tongen and Sanko SS & Co Ltd [1976] 1 WLR 989
Lord Neuberger's 7 fcators of contractual interpretation
'The reliance placed in some cases on
commercial common sense
and surrounding circumstances
should not be invoked to undervalue the importance of the language
of the provision which is to be construed'
'The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is
not a reason for departing from the natural language
Arnold v Britton [2015] UKSC 36
- The primacy of the natural meaning of words
