Unfair Contract Terms Act 1977 - Essay Example

Exclusion Clauses Number Department Exclusion Clauses An exclusion or exemption clause is a contractual term that limits liability of a party to the agreement on issues which it spells out. This kind of clause in a contractual agreement can be unlawful or lawful depending on the nature of the liability which the party was seeking to exclude himself or herself from (Page, 1994). Exclusion clauses are common in business contracts in which settlements of liability are unreasonable and would otherwise threaten the financial assets. Contracts with exclusion clauses require the offeree to understand the terms and agree to them before appending his or her signature to the contract. Unfair Contract Terms Act 1977 Exclusion clauses are guided by statutory provision and case law (Barker, 2007). In English Law, Simon (1981) noted the Unfair Contract Terms Act 1977 (UCTA) seeks to regulate exclusion clauses in contracts by limiting their applicability to cases where they are absolutely necessary. The Act regulates all contracts (Beale, 2012). One of the statute’s primary roles is to restrict the legality of disclaimers of liability to reasonableness, depending on the kind of the duty which is claimed to be exempted and whether the offerer who intended to benefit from such clauses harmed the consumer’s interests (Brawn, 2012). The UCTA is usually applied in combination with the Sale of Goods Act 1979, the Supply of Goods and Services Act 1982 and the Unfair Terms in Consumer Contracts Regulations 1999. Ineffectiveness of exclusion clause Firstly, under the UCTA, a party cannot excuse himself or herself from negligence under section 2(1) of UCTA 1977 when the breach of duty results in death or personal injury (Hughes-Jennett and Anslow, 2009). Secondly, under section 5(a), a company cannot exempt itself from liability caused by faulty goods or distributor negligence, particularly where commodities are meant for consumption (Stone, 2013). The doctrine that cushions the consumer is referred to as manufacturer liability. Thirdly, in light of the need to protect the consumer, sections 12-15 of the Sale of Goods Act 1979 outlaw the exclusion of implied terms or terms which provide details of value or sample of goods (Walsh, 2009). In addition, the Consumer Protection Act 1987, and the Occupiers Liability Act 1984 are also vital pieces of legislation whose enactment contributes to the regulation of exclusion clauses (Page, 1994). Despite the enactment of these rafts of legislation to regulate a relatively small area of law, the fundamental reason behind them is to protect unsuspecting consumers from death, personal injury or material losses caused by negligent acts of the companies and or their agents (Whincup, 2006). By contrast, business to business contracts have seen, perhaps the widest application of exclusion clauses provided the terms meet the reasonableness test (Barker, 2007). The reasonableness test Beale (2004) noted that under section 2(2) of the UCTA 1977, a party may claim exemption from liability for any negligent acts that do not cause death or personal harm, provided its application would be reasonable. In addition, under section 3 of the Act, contractual liability is applicable against a party whose dealings are based on common terms specified in writing or where the contract involves a consumer, provided it meets the reasonableness test (Slapper and Kelly, 2009; Stne, Devenney and Cunnington, 2011). Types of Exclusion Clause There are three types of exclusion clauses in business transactions: these are: true exclusion clauses, limitation clauses, and time limitation clauses (Clements and Abass, 2011). True exclusion clause foresees a likely violation of contractual terms, and then exempts liability resulting from the breach. Alternatively, true exclusion can be framed to cater for reasonable care during the implementation of the contract by either party (Stne, Devenney and Cunnington, 2011). Limitation clauses impose the pecuniary parameters within which an aggrieved party can claim liability for a violation of contract, irrespective of the real loss. Lastly, time limitation clauses indicate that an application for damages must be filed within a specified period of time failure to which any cause of action would be void. Judicial role in Exclusion Clauses Literal rule Courts are mandated to give meaning to exclusion clauses whenever such disputes are brought to their attention. The application of an exclusion clause can only take place if it covers the violation arising from a breach of contract (Lawson, 2011). In case there is an injury, then the kind of liability raised becomes an important factor to consider when granting claims (Poole, 2012; Bonell, 2009). In most cases, strict liability and liability for negligent acts will arise. According to Hughes-Jennett and Anslow (2009), strict liability is the damage caused without any acts of omission or commission by the party accused of a breach, while liability for negligence is occasioned by alleged fault(s) of the party accused of the breach. As Brawn (2012) had said, for exclusion clauses to work in favour of the party proposing them, courts place the obligation of drafting such clauses upon the offeror. Failure to fulfil this duty in a precise and clear manner would result in the court’s interpretation of the clauses against the offeror under a doctrine referred to as Contra Proferentum. The case of R&B Customs Brokers Ltd v United Dominions Trust Ltd [1988] 1 WLR 321 provided a rare platform for the court’s interpretation of English contract law within the context of the UCTA 1977. The court disallowed an exclusion clause on the basis that the offeror did not give specific and clear details of the implied terms of the contract. Additionally, if the case involves negligence claims, the judges have assumed that it is improbable that a party would agree to formalize a contract that would enable the other entity under the contract to circumvent liability arising from their fault. As a consequence, in case a party’s desires to be exempted from their liability for negligent acts, the party has an obligation to bring the issue to the attention of the other party. The outcome of the case of The King v. Canada SS. Lines, [1950] S.C.R. 532 provided the much-needed precedent on the doctrine of Contra proferentem by holding that in the event that the exclusion clauses make an explicit reference to "negligence", then the injury arising from negligence would be exempted. However, in the absence of any reference to it, then negligence claims would only be excluded if the description provided in the clause leaves no doubt that negligence was the main agenda; otherwise Contra proferentem would apply (Zuckerman, 1999). Yet, if the exclusion clause mentions an exemption from another liability, then the claims would suffice. Incorporation of exclusion terms Incorporation of exclusion terms in the body of the contract is the most important factor to consider when examining their performance under contracts (Moss, 2011; Turner, 2013). Common law allows for three methods through which parties can incorporate exclusion clauses: firstly, incorporation by signature, requiring the inclusion of exemption clauses to the actual contractual document which both parties have appended their signatures on (Zuckerman, 1999). In the case of LEstrange v F Graucob Ltd [1934] 2 KB 394, the English Court of Appeal ruled that in the event that an exception clause is contained in a different document separate from the one signed by parties to a contract, such terms will only be deemed as incorporated if the offeror imposing the terms can prove that he or she took appropriate steps to inform the offeree of the terms. The case of Olley v Marlborough Court Hotel [1949] 1 KB 532 specified the terms should be provided prior to the signing and formalization of the contract (Basedow, 2011). But, the notification is however hard to prove in court in the sense that the party that relies on an exclusion clause must show that the offeree read the relatively ‘remote’ clauses and or understood them before the two parties could sign the contract. Secondly, incorporation by notice requires the proferentem or the originator of exclusion clauses to incorporate them in the contract and act reasonably to draw the attention of the other party to its existence (Basedow, 2011). In the case of Parker v South Eastern Railway [1877] 2 CPD 416, the court decided that a party cannot cite ignorance as the defence for failing to read contractual terms. The court noted, however, that the party that intends to benefit from an exemption of liability has an obligation to take appropriate steps to familiarize the offeree with the terms. In the case of Thornton v. Shoe Lane Parking Ltd [1971], the court directed that the broader the exclusion clause, the higher the responsibility of the party depending on it to notify the other party (Shouzhi, Xiaodan, and Xiang, 2012). In the case, it was decided that that a truck driver making his way into a parking lot, who is served by an automated parking ticket dispenser is only under the duty to observe the terms served on them before they take the ticket, because the contract is formalized upon taking of the ticket. In light of this, the owner of the car park cannot claim exclusion from liability if such terms cannot be seen by a reasonable person upon taking of the ticket. Exclusion clauses which are not written on the top of the ticket, and therefore cannot be seen by a reasonable person before receipt of the ticket cannot stand in the event that their truck is damaged at the parking lot due to inadequate precaution by the car park. Lastly, incorporation of terms can also be construed in light of the manner in which successful previous contracts had been performed between two parties (Lawson, 2011). In the case of McCutcheon v David MacBrayne Ltd [1964] UKHL 4, the court held that exclusion terms may be included in writing into a contractual agreement if the parties have regular and consistent dealings. The courts must however, consider the facts on a case-by-case basis, and factor in the bargaining power of either party in an effort to guarantee justice. Conclusion Exclusion clauses are common in business contracts, but they are only applicable if they are fair, just and reasonable. Consumers have a preferential treatment under the UK contract laws because such parties are more vulnerable to death, personal injury or material damages resulting from faulty goods. In light of this, exclusion clauses do not apply where human life or personal injury is concerned. Incorporation of exclusion terms in the original contractual document is perhaps the most important rule in the implementation of the contract because it places both parties on the same pedestal under a contract. 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