Contract - Exclusion And Limitation Clauses

Courts cannot strike them down, though Lord Denning has tried

No more need for strained language, Lord Bingham, George Mitchell v Finney Lock Seeds

1 Restrictive approach to incorporation by notice

2 Interpretation contra proferentem

1 Aggressive principles of interpretation

2 Canada Steamship Lines v The King

3 Lord Morton: courts must give effect to express language

4 If there is doubt, it must be interpreted contra proferentem

5 If it might exclude other forms of liability, it should be interpreted that way

6 In the case, the clause was interpreted to exclude strict liability but not negligent liability

1 Hollier v Rambler Motors

2 Clause excluding fire damage taken only to mean strict liability, not negligence

3 As a non-lawyer would think there was liability without negligence

1 George Finney v Finney Lock Seeds

2 Lord Denning MR's final judgement (upheld by House of Lords)

3 He noted the 'bleak winter' of exclusion clauses

4 The 'gymnastic contortions' needed to get round them

5 Following the UCTA, the 'idol of 'freedom of contract' was shattered

6 The clause here - excluding liability up to £200 in £600,000 case - was struck down

1 Bank of Credit and Commerce International v Ali

2 Lord Hoffmann: no need to use artificial rules of construction, with ICS approach

3 In that case, he dissented, arguing a clause should be given natural meaning as the draftsman meant business

1 The Tychy (No 2)

2 Lord Phillips MR: 'a little intellectual hand luggage is no bad thing when construing a contract'

1 HIH Casualty and General Insurance v Chase Manhattan Bank

2 Rules not overruled, but guidelines, not too rigidly applied

Rule of law that no term could exclude liability for a breach of a fundamental term

1Overruled in Photo Production v Securicor

2 Clause excluding liability for injurious acts by employees was clear and upheld

3 Lord Wilberforce: no place for doctrine after UCTA

4 Beyond the Act, parties can apportion risk as they please

5 Lord Denning agreed extra-judicially in The Family Story

1Alisha Craig Fishing v Malvern Fishing

2 Lord Wilbeforce: not the same 'hostility'

1 Impossible at common law

2 HIH Casualty Insurance and General Insurance v Chase Manhattan Bank

Misrepresentation Act 1967, Section 3

1. Schedule 1

2 Contracts uberrimae fidei and sale of land etc

Business liability (1(3))

1 Clauses restricting liability for negligence

2 Clauses in consumer and standard form contracts restricting liability for breach

3 Clauses which restrict liability for breach of terms implied by statute

1 Will be ineffective

2 Or will be subject to a test of reasonableness

12(1): course of business (consumers receive more protection)

2 To count as business, must be integral part of buyer's business

2(1) - personal injury or death

6(2) and 7(2) - defective products to consumers (to stop people excluding Sale of Goods Act liability)

2(2) - harm other than personal injury

6(3) and 7(3) - defective products to non-consumers

Section 3: reasonableness test seeking to limit liability for breach under standard terms

2 May still apply to business-business if on one's standard terms

1 Watford Electronics v Sanderson CGL

2 Test of fact and degree

3 Some minor negotiations still makes them standard terms

11(1)

Schedule 2 - factors to consider

1 Relative bargaining power

2 Clarity

3 Insurance

4 Relationship between loss and limitation

1 Watford Electronics v Sanderson CGL

2 On standard terms, section 3

3 Upheld - importance of equal bargaining power, two businesses

1 George Finney v Finney Lock Seeds - struck down because no negotiation

2 St Albans City Council v International Computers

3 limitation clause struck down because D huge company

4£50 mil liability insurance

5 limited choice

6 otherwise loss borne by the public

1 EU directive to harmonise rules

2 German delegation wanted to focus on unfair surprise

3 Law Commission has sought unification with UCTA 1977

5(1): terms which cause a significant imbalance in rights and obligations

5(1) contrary to good faith

Schedule 2: grey list

6(2): core terms of the contract including price

2 Lord Mustill has complained extra-judicially that lopping off any term from a contract invalidates / imbalances what is left

4(1): apply tocontracts between seller/supplier and consumer

Only humans

UTCCR applies to more terms - not just limitation / exclusion clauses - but humans (3(1)) and standard terms only (5(1))

2 UCTA reasonableness, UTCCR fairness

1 Kronman: courts must ensure fair distribution of resources

2 Schwartz: regulating contracts boils down to price control, which courts are not equipped for

3 Regulation overlooks extra-legal factors - journalism etc

1 Director-General of Fair Trading v First National Bank

2 Good faith is fair and open dealings (procedural and substantive unfairness)

3 Good faith not alien to British lawyers since Lord Mansfield

4 Good standards of morality and practice

1 Office of Fair Trading v Abbey National

2 Unauthorised overdraft charges core terms because part of price

7(1): requirementof clear language

7(2): contraproferentem rule

12: Office of Fair Trading can enforce UTCCR

1 Law Commission wanted to clear up discrepancies between UCTA and UTCCR

2 Consumer Rights Act planned to abolish UTCCR and leave UCTA for non-consumer contracts (originally wanted to abolish both)

3 Based on model of rational consumer

4 Test of fairness