University of Bath
Unfair Terms and Exemption
Clauses
Machaela Parkin and Claire Russel
Signed documents – UNFAIR TERMS
• Signing a contract containing exemption clause means it will
form part of the contract and thus you are bound by the
terms. - L'Estrange vs. Graucob [1934]
• Exclusion Clauses – a clause which excludes a
party of all liability for breach of contract
• Limitation Clauses – a clause which limits a
party’s liability for a breach of contract
Common Law Regulation of Exemption Clauses
Common Law Position
o Incorporation
o Has the term been properly incorporated into the contract?
How?
When?
o Construction and Interpretation
o Does the term cover the loss in question and
o Is it free from ambiguity?
Incorporation
By signature
L’Estrange v Graucob (1934) the Court held that if the parties record their agreement in a document
which they sign, then they will be bound by the written (express) terms even though they don’t know
what they are. This is because, by signing a document a person indicates to the world that they
agree to the terms contained therein
Except where the effect of the term has been misrepresented.
Curtis v Chemical Cleaning and Dyeing Co Ltd
Reasonable notice
Must do what is reasonable to bring the term to the other party’s attention
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1988] held that the more onerous the
penalty clause, the greater the effort required to bring the notice to the other part’s attention.
When must it be incorporated?
The timing of incorporation must be before or at the time of entering
into the contract.
Olley v Marlborough Court [1949]
The notice behind the hotel bedroom door was introduced
too late to be incorporated into the contract.
Construction and Interpretation
Contra Proferentem Rule
where a clause contains an ambiguity, the Court will interpret it against the
party seeking to rely upon it.
Clear words must be used, and they must cover the
liability in question
Andrew Bros (Bournemouth) Ltd v Singer & Co Ltd [1934]
Unfair Contract Terms Act 1977 (UCTA)
“Legislation which imposes limits on
the extent to which civil liability for
breach of contract, for negligence or
other breach of duty, can be avoided
by means of contract terms and
otherwise”
S.2 Consumer Rights Act 2015 “Dealing as a Consumer”
“Trader”… a person acting for purposes relating to that person’s
trade, business, craft or profession.
“Consumer” means an individual acting for purposes that are wholly
or mainly outside that individual’s trade, business, craft or profession.
(Does not apply if the goods are second hand goods sold at public auction
and individuals have the opportunity of attending the sale in person).
Statutory Regulation of Exemption Clauses
Limitation Clause seeks to limit the liability of a party
Exclusion clause seeks to exclude liability completely
UCTA 1977 & CRA 2015 put unfair terms under the
microscope and renders such terms either
o Automatically Ineffective
o Unreasonable
Schedule 2 UCTA 1977
(a) the strength of the bargaining positions of the parties relative to each other, taking into account (among
other things) alternative means by which the customer’s requirements could have been met;
(b) whether the customer received an inducement to agree to the term, or in accepting it had an opportunity
of entering into a similar contract with other persons, but without having a similar term;
(c) whether the customer knew or ought reasonably to have known of the existence and the extent of the term
(having regard, among other things, to any custom of the trade and any previous course of dealing between
the parties);
(d) where the term excludes or restricts any relevant liability if some condition was not complied with, whether
it was reasonable at the time of the contract to expect that compliance with that condition would be practicable;
(e) whether the goods were manufactured, processed or adapted to the special order of the customer.
“Reasonableness”
S.11 UCTA states that all terms must pass the test of reasonableness if they are
to be allowed.
The test for reasonableness can be found in Schedule 2 to the Act.
Woodman v Photo Trade Processing Ltd (1981)
The strength of the relative bargaining positions of the parties, including the availability of
alternative sources for the buyer
Chesterhall) Ltd v Finney Lock Seeds Ltd (1983)
Whether the buyer knew or reasonably should have known of the term and its implications
(including previous dealings between the parties)
Ineffective Terms
In some situations, UCTA will deem the term ineffective regardless of
whether it meets the test of reasonableness.
S.2 (1) UCTA 1977 (S.65 CRA 2015)
S.2 (2) UCTA 1977
