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Specific clauses
Drafting points
2.
3.
1.
Unless the exclusion or limitation clause is incorporated into the relevant contract, it will be
unenforceable. Even assuming that the "battle of the forms" has been won, if a party is trading on its
standard terms an unusual or unclear exclusion clause may fail if it is not given a sufficient degree of
prominence. The more unusual or onerous the clause, the more prominence it should be given.
2.
The words used must clearly and unequivocally cover what they are intended to cover.1 The question for
the court, in all cases, is whether the clause, on its true construction, extends to cover the obligation or
liability that it seeks to exclude or restrict.
So, for example, if a clause aims to exclude liability for negligence, general words such as "any loss" or a
reference to loss "howsoever caused" may not be sufficient. An express reference to "negligence" should
appear in the wording since the courts regard it as "... inherently improbable that one party to the
contract should intend to absolve the other party from the consequences of the latter's own negligence"2.
1
2
See Pegler -v- Wang (UK) Limited (2000) BLR 218, in which the judge stated that if the defendant had wanted to exclude liability for
certain matters then it should have done so expressly.
Gillespie Bros & Co Ltd -v- Roy Bowles (Transport) Limited [1973] 1 QB 400.
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the wording of a clause is ambiguous, it will be construed "contra proferentem". This means that the
court will interpret the clause strictly and construe any ambiguity against the party seeking to rely on it.
Nonetheless, even where a contract is unaffected by the legislation described below, the common law
approach to construction is not always a literalist one and limitation/exclusion clauses will not be given a
literal interpretation which would otherwise produce a result at odds with the main object of the contract
(Mitsubishi Corporation -v- Eastwind Transport Limited and Others3).
3.
Statutory controls
4.
Negligence
It is not possible to exclude or restrict liability for death or personal injury resulting from negligence. In
the case of other loss or damage resulting from negligence, liability can be restricted, but only insofar as
the term or notice satisfies the UCTA reasonableness test which is explained later in this guide. This rule
applies in all circumstances, regardless of whether the term is in a contract or a non-contractual notice
or whether the parties are dealing on standard terms or a bespoke contract. The rule applies regardless
of whether the person to whom the exclusion is directed is a business or a consumer.
Misrepresentation
Any
term
of
contract
which
attempts
to
exclude
or
restrict
liability
for
pre-contractual
misrepresentations or which tries to limit the remedies available for misrepresentation will be of no
effect save to the extent that it satisfies the requirement of reasonableness in UCTA.
This is frequently relevant in the context of "entire agreement" clauses which attempt to exclude all
representations and other information disclosed during pre-contractual negotiations. Such clauses are
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most likely to be regarded as reasonable in situations where the pre-contractual negotiations have been
complex, on the basis that both parties benefit from the certainty of setting out all relevant rights and
liabilities in one document without the worry of a possible collateral warranty claim.
Beware of including an entire agreement clause
which attempts
to
exclude
liability
for
all
(b)
(c)
in respect of the whole or any part of a contractual obligation, claims to allow no performance at
all (e.g. if a condition precedent is not satisfied),
unless (in each case) the clause satisfies the reasonableness test.
This rule applies where one of the contracting parties "deals as a consumer" or is a business contracting
on the other's written standard terms. "Written standard terms" is interpreted more widely than may be
expected and could catch negotiated contracts which have standard exclusion clauses inserted into them
or if the counterparty refuses to negotiate the clause (see St Albans City and District Council -vInternational Computers Ltd5).
Commercial contracts commonly contain force majeure clauses absolving the parties from liability if
some unforeseeable event occurs that renders performance impossible. Such clauses can, in practice,
have the same effect as exclusion clauses and may be subject to the reasonableness test under section
3 of UCTA. Although force majeure clauses are generally regarded as reasonable, they may raise
problems where they are drafted unusually widely to cover matters such as increased costs or events
which are arguably within the control of the parties.
4
5
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Quality of goods
The Sale of Goods Act 1979 (as amended by the Sale and Supply of Goods Act 1994) implies warranties
as to the quality of goods into contracts for the sale of goods (i.e. that the goods, where sold by
description/sample, must conform to that description/sample, must be of satisfactory quality and must
be fit for their purpose). Similar terms are implied into hire-purchase contracts by the Supply of Goods
(Implied Terms) Act 1973.
Under section 6(2) of UCTA, liability for breach of these implied terms cannot be excluded as against a
consumer. It is, however, possible to exclude or restrict liability for breach against other persons, but
only in so far as the clause in question satisfies the requirement of reasonableness. It is likely to be
reasonable if the buyer is given the chance to inspect the goods or to provide input into their design
and/or manufacture.
Indemnities
A person dealing as a consumer cannot be made to indemnify another person for any liability which the
other may incur in respect of negligence or breach of contract, unless such a requirement satisfies the
UCTA reasonableness test (which is highly unlikely).
Guarantees
It is not possible in a guarantee relating to consumer goods to exclude loss or damage caused by
negligence on the part of the manufacturer or distributor.
5.
This is fundamental to the operation of UCTA. A term will be reasonable if it is "a fair and reasonable one
to be included having regard to circumstances which were, or ought reasonably to have been, known to
or in the contemplation of the parties when the contract was made".6
whether the customer knew or should have known that the term was included;
in the case of a term excluding liability if a condition is not complied with, the likelihood of
compliance with that condition at the time the contract was made; and
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Although it is stated that the guidelines apply specifically to sale and supply of goods situations, they are
usually regarded by the courts as of more general application (Stewart Gill Limited -v- Horatio Meyer &
Company Limited7).
UCTA makes no distinction between consumer and business contracts, but the approach of the courts
shows without doubt that it will be more difficult to prove that a clause is reasonable as against a
consumer. In business contracts, especially where the parties are of comparable bargaining power and
can insure against the risks contemplated by the clause, courts are reluctant to intervene and prefer to
leave the parties free to apportion the risks as they see fit (Watford Electronics Ltd -v- Sanderson CFL
Limited8). Nevertheless a clause which attempts to leave a customer of whatever type without a realistic
remedy for a serious breach of contract runs the risk of unreasonableness (Regus (UK) Ltd v- Epcot
Solutions Ltd).9
Additional principles of "reasonableness" exist at common law. As a general rule, a clause limiting the
amount of money recoverable is more likely to be reasonable (Ailsa Craig Fishing Co. Ltd -v- Malvern
Fishing Co. Ltd) than one excluding liability altogether.
10
unnecessarily convoluted drafting is likely to be unreasonable (Stag Line Ltd -v- Tyne Ship Repair
Group11). Industry practice and the availability of insurance have also been persuasive: Cover Version
Ltd -v- DHL Logistics (UK) Ltd.12
alternative. In other words, liability for the event in question will be completely uncapped, subject only
to the usual rules regarding remoteness and causation. On the other hand, no sanctions such as fines
apply to anyone using an invalid clause
The problem of a clause being partly valid and partly invalid under UCTA is a difficult one with no clearcut answer. Although this is a complex area, the practical implications are much simpler. The risk of an
entire exclusion or limitation of liability being unenforceable can be minimised by drafting it, using subclauses, as a series of separate "terms" easily distinguishable from one another. Avoid the use of a
single, broad clause which addresses all issues together. 14
6.
Broadly, UCTA does not cover insurance contracts; contracts relating to the creation, transfer or
termination of intellectual property rights; contracts relating to the formation, dissolution or constitution
of a company or to the rights or obligations of its members; contracts relating to the creation or transfer
of securities or rights in securities; contracts relating to the creation, transfer or termination of an
7
8
9
10
11
12
13
14
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interest in land; certain marine/shipping contracts; or employment contracts. There are, however,
certain savings for consumers under marine/shipping contracts, and for employees under employment
contracts (Schedule 1).
UCTA does not extend to "international supply contracts" either. Broadly, these are contracts under
which possession or ownership of goods passes and which envisage that goods will be carried between
different states or those with offer and acceptance in different states.15 Contracts for the international
supply of services remain within the control of UCTA, assuming English law is the applicable law in the
contract. As a result, suppliers can be a lot bolder in excluding their liability under contracts for the
cross-border supply of goods in comparison with providers of services (section 26).
7.
Drafting points
The first step is to consider whether the impact of UCTA can be minimised or even avoided altogether.
Because standard terms or clauses will attract section 3 of UCTA and the reasonableness test for any
restriction of contractual liability, consider whether a bespoke, individually negotiated contract may be a
better way to address this. In all cases, however, clear and simple drafting is important.
General considerations
Take care that general words such as "other" and "including" do not put a misleading gloss on a
clause.
Use separate, precise clauses which break down the issues for easy analysis and to aid
severability.
Consider inserting an express obligation for the parties to obtain insurance cover.
If appropriate, keep records of the fact the clause has been negotiated and why the parties
agreed what they did.
Monitor the sector. A clause is more likely to be reasonable if it reflects industry practice.
A realistic approach
A "blanket" exclusion which prevents, as opposed to merely limits, recovery of damages even for a
serious default is not automatically ineffective. The broader the exclusion, though, the clearer the
wording must be 16 . However, wherever it is commercially acceptable, parties might consider limiting
15
16
See Trident Turboprop (Dublin) Ltd -v- First Flight Couriers [2008] 2 Lloyd's Rep 581.
Photo Production Ltd -v- Securicor Transport Ltd [1980] AC 827; [1980] 2 WLR 283.
Page 6
liability rather than seeking to exclude it altogether, as a sensible cap on liability is more likely to be
upheld than a blanket exclusion17.
Liability for warranties which have been given expressly should not be excluded. Liability should never
be excluded for dishonesty (e.g. fraud or fraudulent concealment), although it is possible to distinguish
fraud or dishonesty by an agent in the performance of the contract: (Frans Maas (UK) Ltd -v- Samsung
Electronics (UK) Limited18).
Other approaches
Exclusion clauses can take a variety of forms. Rather than expressly excluding liability, some clauses
seek to limit the type of loss which is recoverable or on the remedies available. An example of such a
clause would be a seller providing a buyer with a right of repair or replacement in respect of defective
products rather than a right to reject the goods. Another possibility is to put a time limit upon the period
in which defects may be notified or legal proceedings issued (e.g. no liability unless buyer notifies the
seller of any damage to delivered goods within 28 days of delivery). Clauses like this are limitation
rather than exclusion clauses and, as such, are not construed so strictly as blanket exclusions of liability.
Nonetheless, care should be taken in business-to-consumer contracts or in standard form contracts to
ensure that they are reasonable.
17
18
19
20
21
Ailsa Craig Fishing Co Ltd -v- Malvern Fishing Co Ltd, supra 101
[2004] EWHC 1502 (Comm).
See also Transfield Shipping Inc -v- Mercator Shipping Inc (The Achilleas) [2008] 3 WLR 345: a claimant will not be able to recover
losses for which the breaching party cannot reasonably be assumed to have accepted responsibility.
See for example University of Keele -v- Price Waterhouse [2004] EWCA Civ 583.
Note, however, that complying with a "reasonable endeavours" obligation can, nevertheless, involve substantial costs for the obligor as
it can be interpreted as involving taking such steps which a prudent and determined person acting in their own interest and anxious to
achieve what is required would take (see A Turtle Offshore SA -v- Superior Trading Inc (2008) EWHC 3034 (Admlty).
Page 7
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