Question on Exemption Clauses / Misrep - Contract Law

Suppose "A Ltd" is a supplier of goods and services and they have an exemption clause which excludes all liability for "personal injury, death, everything under the sun, caused for any reason whatsoever."

Suppose also that A Ltd breach the implied term to take reasonable care and skill, but the only damage is minor property damage which (for the sake of argument) it would have been reasonable to exclude liability for. I am confused whether A Ltd can rely on the term or not.

S2(2) of the UCTA 1977 states that it is the term that has to satisfy the test of reasonableness, and this term is not reasonable. But on the other hand, S11(3) states that 'the requirement of reasonableness under the act is that it should be fair or reasonable to allow reliance on it, having regard to the circumstances obtaining when the liability arose', and relying on it is reasonable in these circumstances.

So does S11(3) effectively override the perfectly normal meaning of S2(2) that it is the term that has to be fair and reasonable? With regard to excluding liability caused for damage to a cheap item of clothing it may be perfectly reasonable to rely on the term, but the term itself is not reasonable.

If that is the case, why does this differ from the test for reasonableness for terms excluding liability for misrepresentation under the Misrep Act 1967? There it is the term that has to be fair and reasonable *not* the reliance placed on it. In Thomas Witter v TBP Industries, Jacob J stated "The 1967 act calls for consideration of the term as such. And it refers to 'any liability' and 'any misrepresentation'. It does not call for consideration of the term so far as it applies to the misrepresentation in question or the kind of misrepresentation in question. The term is not severable: it is either reasonable as a whole or not".

Am I reading too much into it and for whatever reason Parliament has decided that one can only exclude liability for misrepresentation with a reasonable term, but one can exclude liability for damage to property even if the term is unreasonable if reliance on it is reasonable?

Reply 1

ktwolves

Whether a term is reasonable is a question of facts not law. On the question of facts, 2 separate issues arise, one is the term reasonable i.e the nature of the clause, if it is too onerous for example, second is it reasonable to rely upon it. The second will depend upon the knowledge of the parties and the circumstances.

(edited 12 years ago)

Reply 2

Forum User

Okay, I see that my OP was wrong having read the act again.

The bit about reliance being fair and reasonable in S11(3) doesn't apply to contracts at all, right? It just applies to non-contractual notices, i.e. an occupiers sign on his land saying 'look out for the deep uncovered well, it's not my fault if you fall in it'.

S11(1) states that for contract terms the test is whether the term itself is fair and reasonable given the circumstances/knowledge when the contract was made. So there is only a one stage test - if the term isn't fair and reasonable it doesn't matter that reliance on it would be reasonable given what actually occurred. There is no 'severability' of the 'unreasonable' bits leaving some reasonable clause behind. So for exemption clauses, it is better to draft 'many clauses', and let the unreasonable ones get stripped away by the courts, than to draft one overarching clause and try to rely on it whenever its reasonable.

(edited 12 years ago)

Reply 3

ktwolves

It just applies to non-contractual notices???? You have created a new term.

The first thing you need to do is to explain or argue whether the notice has been in-corporated into the contract, to be part of terms implied into the contract.
If it was incorporated, then the exclusion clause is part of the contract, whether it is legally enforceable depends on whether it is valid (excluding death or injury is not valid) or reasonable.

Reply 4

Forum User

Original post by ktwolves

???? You have created a new term.

Where have I created a new term?

S11(3) starts "In relation to a notice (not being a notice having contractual effect)" - I think 'non-contractual notice' is a perfectly reasonable short-hand to refer to this, and I gave an example of what that was. Essentially I was explaining why I was wrong in my OP to consider S11(3) relevant to ordinary contractual exclusion clauses, it applies to non-contractual matters such as breach of occupier's liability in tort under the 1957 Act. In any case I am certainly not the first person to use this short-hand - see ' L. S. Sealy (1988). Reasonableness—Contractual Terms and Non-Contractual Notices. CLJ 47 , pp 6-8, and the law commission also uses this term in the 'unfair terms in contracts' consultation paper. Anyway, that's not important, my OP was written on the basis of me having misread S11(3) to apply to all exclusion clauses, it doesn't.

For the second part of your reply, I am sure everyone is aware that exemption clauses must be incorporated into the contract. I have no questions at all about incorporation. I was considering whether the test for 'reasonableness' under S2(2) was the test: 'Is it reasonable to allow reliance on the term to cover the breach that *has* occurred', or the test: 'Is the term reasonable as at the start of the contract, with no 'foresight' as to which breach is going to happen'. Clearly the test is the latter.

That is, the situation with exclusion clauses for breach of contract is actually identical to the situation for exclusion clauses for misrepresentation, both are covered by S11(1), and not as I thought in my OP, a different test (again, because I misunderstood was S11(3) was about).

I have resolved my own confusion by reading the act again, and am not confused by anything any more - but I will leave the thread up anyway.

(edited 12 years ago)

Reply 5

ktwolves

Non-contractual notice, I just have not seen this expression before. So it is kind of interesting term like a void contract is a contract, in a pickwickian sense of course.

To have a contract, you need an agreement with someone.

When you put up a notice you just put it up freely to whoever might see it, so it has to be implied into a contract.

Credit to you to put forward a very relevant issue.

(edited 12 years ago)

Reply 6

Forum User

Original post by ktwolves

When you put up a notice you just put it up freely to whoever might see it, so it has to be implied into a contract.

This is getting away from the original topic, but since I think I understood that now - that's okay.

The non-contractual notice in S11(3) is not implied into a contract at all. It covers non-contractual liability - the best example of which imo is the liability in tort under the Occupiers Liability Act 1957. An occupier owes a duty of care to person's invited onto his land, and a lesser duty of care to trespassers (but there is still a duty - for example you can't dig a pit containing sharpened stakes on your land and then if a trespasser falls into it claim that he shouldn't have been there at all). Or a person might be neither a trespasser or an invitee, they could be someone using a right of way across the land.

If I have, say, an old, covered mine shaft in my field, I owe a duty of care to people on my land in respect of that danger. S11(3) states that I can exclude my liability by giving reasonable notice of that danger, for example by putting up a prominent sign next to the mineshaft saying 'Beware - Mineshaft!'. And there is, in general, no contract between me and the persons using my land (even if I invited them onto it). Another example would be those signs you see around military testing zones warning about the dangers of being blown to pieces by mines or whatever.

So short version is that S11(3) covers tort liability rather than contract liability so is not relevant when dealing with contractual issues.

Reply 7

ktwolves

S11(3) covers tort liability, I have to look this up.

Here
(3)In relation to a notice (not being a notice having contractual effect), the requirement of reasonableness under this Act is that it should be fair and reasonable to allow reliance on it, having regard to all the circumstances obtaining when the liability arose or (but for the notice) would have arisen.

Not too sure how this refers to tortious liabity, fraudulent misrep, negligence (duty of care) test of foreseeability, if someone can pick up from here.

(edited 12 years ago)

Reply 8

Forum User

Original post by ktwolves

I have heard of contractual notice though, referring to termination notice. S11(3) covers tort liability, I have to look this up.

Here
(3)In relation to a notice (not being a notice having contractual effect), the requirement of reasonableness under this Act is that it should be fair and reasonable to allow reliance on it, having regard to all the circumstances obtaining when the liability arose or (but for the notice) would have arisen.

In fact to make it clearer - look at S1(1c) of the UCTA 1977 - it expressly mentions the liability under Occupier's Liability Act 1957.

Though it does seem somewhat strange that an act called 'Unfair Contract Terms Act' covers some terms which are not in contracts at all :s
And quite which liability is covered I am not sure, since the interplay of this Act and the 1957/1984 OLA's seems quite confused.

(edited 12 years ago)

Reply 9

Forum User

Original post by ktwolves

Afaik you can't exclude liability for (your own) fraudulent misrepresentation at all, following the decision in HIH Casualty and General Insurance Ltd v Chase Manhattan Bank.

And actually the more I read the more I am confused how the UCTA 1977 and the OLA 1984 interact. I think I'll worry about that when I do tort next term and leave it for now :smile:

Reply 10

ktwolves

Yes, it reinforces that tortious liabilty cannot be excluded, perhaps but I don't really know. UCTA is very clear, death and personal injury due to negligence cannot be excluded under all circumstances.

On tortious damages is not clear to me, if due to negligence, someone suffers financial damages, it may not be excluded, the test is perhaps reinforced in S11(3) the "but-for" legal causation???

Perhaps it would be a timely reminder that implied terms include also terms implied by law, customs, past dealings..etc