Exclusion Clauses and the Unfair Contract Terms Act 1977 case question.

Notice – It is possible in the absence of signatures, that a notice alerting parties to the existence of a clause is sufficient. Thompson v London, Midland and Scottish Railway Company provides leading authority, insofar that a party seeking to rely on a clause must take reasonable steps to bring it to the attention of the other party, notice need not contain the clause itself, it is sufficient to alert the party to the existence of a clause and direct them elsewhere for the terms and conditions. Timing is important; as the notice must be given before or at the time the contract is formed, notice provided after the contract formation is not valid as the parties have already made their agreement. Olley v Marlborough Court Limited.

Previous Dealings – Courts may decide to consider a clause is incorporated when the parties have had previous dealings. There must be a consistency in the clause type and adequate frequency. Mccutcheon v David Macbrayne Ltd is an example of how consistency of dealings was insufficient, as the clauses had not been provided on every occasion in the same format.  Consumer and business transactions require a larger number of previous dealings to persuade the courts to incorporate a clause. Hollier v Rambler Motors (A.M.C.) Ltd, was a consumer case; previous dealing existed, but only on 3 or 4 occasions in 5 years, this was considered insufficient to demonstrate adequate frequency.

In Petrotrade Inc v Texaco Ltd, both businesses were of similar standing, and had 5 previous dealings over 13 months, this was held to be sufficiently frequent. When considering frequency, it is also necessary to look at equality of bargaining power.

The above common law rules of incorporation need to be applied to Heathers situation;

• Heather did not Sign a contract, her acceptance and incorporation of the clause cannot be demonstrated by signature.  
• She did receive a Notice of the exclusion clause; it was contained in the parcel alongside the goods. This was too late for it to be incorporated into the contract, as the contract was already concluded when the order was confirmed.
• Heather has purchased office equipment from Zero previously; she also receives their advertising literature, which states that Zero offer different levels of service and extent to their liability. The advertising also states that their terms and conditions are available by written request.  Heather could have sought clarification of their trading terms during her previous dealings.

We know Heather did make previous purchases, but we do not know if it was always the “low Cost” option or how often Heather has dealt with Zero.

Assuming their previous transactions were always on the same terms and had been regular, the clause could be incorporated into the contract on the grounds of previous dealings.

Stage Two -Construction

It is necessary to look at the “words” used in the exclusion clause, and consider; how the courts may construe them in their natural everyday meaning, in comparison to any legal interpretation of the ”words”?  Generally any wording in a clause, which is ambiguous, would be under the Contra Proferentum rule, meaning it will be construed against the party that included the clause and is seeking to rely on it.

The exclusion clause attempts to restrict liability “howsoever caused”. This term is wide enough to include both strict liability and negligence. Canada Steamship Lines Ltd v The King introduced a three-part test to clarify the approach in this situation:

1. Do the words used in the clause expressly refer to Negligence?
2. If not, are the words used wide enough to include Negligence?
3. If yes to either above (1 or 2) then consider if negligence is the only reason for liability?

In cases where a party is liable for both strict and negligent liability a court will generally construe the exclusion clause as applying only to the strict liability, White v John Warwick & Co. 

The exclusion clause in Heather’s case sought to limit liability to £1000; when clauses seek to impose a financial limit of liability,  courts adopt a flexible approach, they may construe the limitation clause to apply to strict and negligent liability as in George Mitchell Ltd. v Finney Lock Seeds Ltd. Zero’s employee was negligent therefore we ought to consider both negligent and strict liability.

The clause states “..the benefit of this clause shall extend to the company employees..” 

There is an ambiguity over the words used, this appears to be a limitation clause but refers to a “benefit” to employees; it could also be construed as only applicable to “employees”, possibly interpreting it as free of any financial  limitation in regard to the company owner / shareholder and their premises.

Heathers company, Cellsoon is a Limited company Heather is likely to be a director or shareholder and so may not be classed as an employee.

This section of the exclusion clause if incorporated into the contract ought to be treated Contra Proferentum, which would mean that because of the  ambiguity it could be decided in Heathers favour.

Stage Three – Statutory Provisions

• Unfair Contract Terms Act 1977 S.2(1) a person cannot restrict his liability for injury or death resulting from negligence.
• Unfair Contract Terms Act 1977 S.2(2) a person cannot exclude or restrict liability for negligence except where the “notice” satisfies the requirements of reasonableness.
• Unfair Contract Terms Act 1977 S.6 (3) a person other than a consumer may restrict liability by a contract term provided that it passes the test of reasonableness.
• Unfair Contract Terms Act 1977 S.11 (4)(a) resources available for the purpose of meeting the liability should it arise.
• Unfair Contract Terms Act 1977 S.11 (4)(b) How far it was open for people to cover themselves by Insurance.
• Unfair Contract Terms Act 1977 Schedule 2, provides a guide for reasonableness test criteria. (a) the strength of the bargaining power between parties. (b) Inducement to accept a term. (c) Knowledge of terms through previous dealings.
• Sale of Goods Act 1979 S.14 (2) where a seller supplies goods in the course of business, there is an implied term of satisfactory quality. Subsection (2B) (b) Safety.

Heather was injured; UCTA 1977 S.2 (1) applies in that Zero cannot limit their liability for injury.

The damage to premises was caused by negligence; UCTA 1977 S.2 (2) only permits a party to restrict their liability for negligence when sufficient notice was given and the clause satisfies the test of reasonableness.

UCTA 1977 S.6 (3) applies as the transaction was, for the sale of goods, between business entities, which would permit an exclusion clause under the Act, provided it passes reasonableness.

The test of reasonableness is covered under UCTA 1977 S.11 and the further guidance under UCTA 1977 Schedule 2.  

Zero is a large Plc and heather’s business, Cellsoon Ltd, is a smaller business. It would be appropriate to expect a large company to have resources available to cover the liability or to insure itself against a liability.  Cellsoon Ltd could have insured against damage to their property.

Heather purchased a “low Cost” machine for her company which offered no after-sales services, the low cost option could be considered an inducement under Schedule 2 (b).

Schedule 2 (c), examines if Heathers could reasonably have known of the terms existence through her previous dealings with Zero, this is similar to the common law test of notice via previous dealings.

The Sale of Goods Act 1979, imposes a implied liability, for goods to be of satisfactory quality. Zero cannot limit their liability for goods which are unsafe; the goods heather bought were unsafe and defective, which caused the fire and consequential damage, Rodney was careless in performing his pre-delivery check, therefore the goods were shipped with a safety defect. Zero cannot therefore limit their liability for the consequences.

CONCLUSION

There is an overlap between the common law approach to exclusion clauses and the statutory provisions of UCTA 1977, but by following the three stage approach it is possible to advise Heather.  

Liability cannot be limited in respect of her injury; she will have a claim for this. Provided Zero cannot prove that notice by previous dealings was incorporated and reasonable, they will not be able to rely on the exclusion clause in respect of the damage to Heathers premises.

1464 Words not including 61 Words of case citations.

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