Revise Control of exemption clauses for Cambridge 9084 (3.2.4)

Before any statutory rules can be applied, an exemption clause must first be legally part of the contract. This is the doctrine of incorporation. The courts have established three ways this can occur. Firstly, by signature, as established in L'Estrange v Graucob, where signing a document binds the signatory to its terms, even if unread. Secondly, by reasonable notice, where the party relying on the clause must take reasonable steps to bring it to the other party's attention before or at the time the contract is formed (Parker v South Eastern Railway). Notice given after formation is ineffective (Olley v Marlborough Court Hotel). Thirdly, through a consistent course of dealing between the parties, where the clause has been regularly included in past contracts (Spurling v Bradshaw).

Once incorporated, the courts must interpret or 'construe' the clause to determine if its wording actually covers the breach that has occurred. The main rule of construction is the contra proferentem rule, which states that any ambiguity in the clause will be interpreted strictly against the party seeking to rely on it (the 'proferens'). For example, in Houghton v Trafalgar Insurance, a clause excluding liability for excess 'load' was interpreted to mean excess weight, not excess passengers, thus favouring the claimant. The courts have been particularly hostile towards clauses attempting to exclude liability for negligence, requiring very clear and specific wording to do so. A general phrase like 'any loss' may not be sufficient to cover loss caused by negligence.

UCTA 1977 imposes significant statutory limits on exemption clauses, but it is crucial to remember it now applies only to business-to-business (B2B) contracts. The Act operates in two principal ways. Firstly, certain clauses are automatically void and unenforceable. Most notably, section 2(1) renders any term attempting to exclude or restrict liability for death or personal injury resulting from negligence completely ineffective. Secondly, many other clauses are subject to a 'reasonableness test' under section 11. This applies, for instance, to clauses seeking to exclude liability for other types of loss or damage caused by negligence (s.2(2)), or liability for breach of the implied terms regarding goods (e.g., satisfactory quality) under the Sale of Goods Act 1979 (s.6 UCTA).

The reasonableness test, found in section 11 of UCTA, is the Act's core mechanism. The burden of proving the clause is reasonable lies with the party seeking to rely on it. The test is whether 'the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.' Schedule 2 of UCTA provides statutory guidelines for applying the test, including: the relative bargaining strength of the parties, whether the customer received an inducement to agree to the term, and the customer's knowledge of the term. In George Mitchell v Finney Lock Seeds, farmers bought cabbage seed for £192. The seed was defective, causing the entire crop to fail, leading to a loss of over £61,000. The contract limited liability to the price of the seed. The House of Lords held this was unreasonable. Key factors were that the seller's negligence caused the breach, the seller could have insured against this risk without a large price increase, and past practice showed the seller sometimes settled claims exceeding the limitation, suggesting they didn't always rely on the clause.

The CRA 2015 modernised and consolidated the law for contracts between a 'trader' and a 'consumer' (B2C). It provides robust protection against unfair terms. Similar to UCTA, certain clauses are automatically ineffective. Section 65 states a trader cannot exclude or restrict liability for death or personal injury from negligence. Section 31 makes any term excluding the consumer's statutory rights for goods (e.g., satisfactory quality, fitness for purpose) non-binding. The Act's main control is the 'fairness test' in section 62. A term is unfair if, 'contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations under the contract to the detriment of the consumer'. Schedule 2 of the Act provides a 'grey list' of terms that may be regarded as unfair. For instance, paragraph 6 of the grey list suggests a term may be unfair if it allows the trader 'to dissolve the contract on a discretionary basis where the same facility is not granted to the consumer'. This targets one-sided cancellation rights, a classic example of a 'significant imbalance'.