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9084 · 3.2.4

Control of exemption clauses — practice questions

Practice and worked examples for 9084 Control of exemption clauses. Short previews only — attempt the full question in MarkScheme against the official scheme.

Worked example 1

A customer uses a self-service car park. A ticket says 'issued subject to conditions displayed inside'. Inside, a sign excludes liability for injury. The customer is injured by negligent maintenance. Can the car park rely on the clause?

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1. Incorporation: The reference on the ticket is insufficient. The customer had no reasonable notice of the specific exclusion clause before the contract was formed at the entry barrier (Thornton v Shoe Lane Parking). The notice inside the car park comes too late.

2. Construction: Even if incorporated, a clause excluding liability for negligence must be very clear. Any ambiguity would be construed contra proferentem (against the car park).

3. Statute: This is a trader-consumer contract, so the CRA 2015 applies. Under s.65 of the CRA 2015, a trader cannot exclude or restrict liability for personal injury resulting from negligence. The clause is automatically ineffective.

Conclusion: The car park cannot rely on the clause. It fails on incorporation and is barred by statute.

Worked example 2

Bolts Ltd, a manufacturing firm, buys a new cutting machine from MachineCo for £20,000. Clause 8 of the sales contract states: 'MachineCo's liability for any defect in the machine shall be limited to the contract price.' The machine is defective and breaks down, causing Bolts Ltd to lose a lucrative contract worth £150,000 in profit. Can MachineCo limit its liability to £20,000?

Show solution outline

This is a business-to-business (B2B) contract, so the Unfair Contract Terms Act 1977 (UCTA) applies.

1. Incorporation & Construction: The clause is part of the contract and its wording covers the breach (a 'defect in the machine').

2. Statutory Control (UCTA 1977): The breach relates to the quality of goods, so under s.6 of UCTA, the limitation clause (Clause 8) is only valid if it satisfies the reasonableness test in s.11.

3. Applying the Reasonableness Test: The court will consider the Schedule 2 guidelines:

  • Bargaining Power: Were the parties of equal strength? If MachineCo is a much larger company, the court may see the clause as imposed on Bolts Ltd.
  • Insurance: It would likely have been more reasonable for MachineCo, the supplier, to insure against product defects than for Bolts Ltd to insure against all potential business interruptions from faulty equipment.
  • Proportionality: The key issue is the comparison between the liability cap and the potential loss. This is similar to George Mitchell v Finney Lock Seeds, where limiting liability to the price of defective seed (£192) was unreasonable when the loss was £61,000.

4. Calculation & Conclusion:

  • Actual loss suffered by Bolts Ltd = £150,000.
  • Liability limit under Clause 8 = £20,000.
  • The loss is vastly disproportionate to the liability limit. It is highly probable that a court would find Clause 8 unreasonable under s.11 of UCTA.

Final Answer: The clause is likely unreasonable and therefore ineffective. Bolts Ltd can claim for its full consequential loss of £150,000.

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