CHAPTER UNFAIR CONTRACT TERMS AND CONTROL

Function of Exclusion clause

 The first is to allocate risk in a contract means which party is allocated to bear the
risk of damages.

 Second one is it reduce the litigation by division of responsibility among parties.

 Courts have used a restrictive approach for a term to qualify as an exclusion clause.

3 condition a term must proof to be an exclusion clause:

 Incorporation.
 Interpretation, so parties no what type of loss is being describe here.
 No statute in law nullifying that clause.

Note:
 Courts cannot invalidate a clause because it is unreasonable, DESPITE: Levison v
patent steam carpet cleaning CO , Courts can’t strike down a clause directly.

 But they can use indirect means of restrictive approach towards incorporation and
Interpretation.

Restrictive approach in incorporation:

 Interfoo picture ltd v Stiletto Visual Progammes Ltd

Tools to restrict the exclusion clause:

 Unfair contract terms act 1977 (UCTA) & Consumer right act 2015.

INCORPORATION:

Construction of exclusion clauses:

Contra proferentem rules: The Rule state that the party seeking to rely on an exclusion
clause will have the exclusion clause analyze by the court against it.

It simply seeks to sort out and clear the ambiguity in the term of exclusion clause.

Wallis v Prat & Haynes 1911: Clause stated that no warranty expressed or implied as to the
description of the seed. Seed failed to correspond with description.
Andrew Bros v Singer & Co ltd: Defendant exclude all the condition and warranty implied in
the contract. Claimant wanted to buy a new singer car which turn out to be old and court
stated that despite the exclusion of implied warranty the construct “express” term is not
mentioned hence defendant failed.

Exclusion of express and implied both:

When it is mentioned all obligations of express and implied terms are exclude the words will
not be stipulated like reference of condition etc.

Air Transworld ltd v Bombardier.

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COURTS AVOIDING CONTRA PROFERENTEM RULE:

Legal drafting in commercial organization:

Courts will be reluctant to use contra proferentem rule as such Transocean drilling ltd v
Providence resources ltd.

Limited liability cases:

Where risk is allocated to both parties but not equally, one party limits the damage they will
be liable to provide.

Ailsa Craig fishing v Malvern Fishing 1983

Court don’t use contra proferentem rule: BHP petroleum ltd v British steel plc.

If there is less ambiguity regarding the construct of the exclusion or limitation liability clause
courts are reluctant to use restrictive approach and construe the clarity or unambiguity.

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NEGLIGENCE LIABILITY:

Negligently inflicted damage cannot be excluded because of UCTA restriction.

Canada steamship Lines Ltd v the king 1952

Morton test:

If the clause contains language which expressly exempts the person in whose favour
it is made (hereafter called the `the proferens’ from the consequences of his own
servants, effect must be given to that provision.

If there is no express reference to negligence, the court must consider whether the
words used are wide enough, in their ordinary meaning, to cover negligence on the
part of the servants of the proferens.
If the words used are wide enough for the above purpose, the court must then
consider whether `the head of damage may be based on some ground other than
negligence”- (Lord Morton of Henryson)

FIRST RULE OF MORTON TEST:

When a party expressly use a language that exclude a party relying from the negligence then
conditioning upon UCTA effect will be given to the term. Smith v UBM Chrysler 1978.

Monarch airline ltd v London Luton Airport: The Airport and airline contract had a word
written as Exclusion of liability for any damages via result of omission, neglect or default,
The court held the word neglect as negligence as the overall word and language and whole
facts were substances of negligence.

IF FIRST RULE OF MORTON IS NOT SATISFIED COURT WILL MOVE TO THE OTHER
SUBSTANCES.

2nd and 3rd Rule:

2nd rule has a wider scope like act of omission, or any damage whatsoever are wide enough,
and court sort out any negligence, if any. If doubts occur that term express widely the court
can sort out for the party relying on it.

3rd rule: Whether the clause cover liability other than negligently inflicted harm, other
liability may be warranty or strict. When the alternative liability is found it doesn’t entangle
with the negligent liability after that.

But The Raphael 1982 it was held if the exclusion clause is imaginary (not occurring) or
remote the Exclusion clause will not cover it.

The 2nd rule is contradictory to 3rd as the second is so wide that it can catch negligence but
there is a risk of catching the other type of liability by 3rd type as the scope is wide and the
room for other liability is open, hence the 3rd rule demands the term should be narrow to
sort the negligence only.

Ultimately end up with neglecting the liability of negligent if found, hence sorting out the
alternative liability which a person will be liable.

DEBATE: CLAUSE THAT PREVENTS BOTH NEGLIGENT AND ALTERNATIVE LIABILITY:

It is not possible via Morton rule as it will frustrate since the 2 nd and 3rd rule goes parallel
with each other.

THE ARGUMENT OF AVOIDING MORTON RULE:

COMMERCIAL ENVIRNMENT:
Schenker and co v Malpas equipment: Law should be construed regarding the
understandability of businesspeople, so they can sort between each other rather than go to
courts.
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APPROACHES OTHER THAN MORTON RULE:

INTENTION OF PARTIES REGARD TO EXCLUSION:

Courts have emphasized on intention of the parties with regards to Exclusion: HIH Casualty v
Chase Manhattan bank

Latter this was seen in a case: green which millennium village v Essex service group plc: The
passive negligence of a party means the party fail to detect defect entitle to claim an
indemnity from the Active party the original cause of the defect. Hence parties intended to
transfer the liability to sub contracted party like transfer from the chain of sub-contractors
to the original causal one.

THE JUDICIAL INTERPRETATION REGARDS TO EXCLUSION CLAUSE:

The Morton rule especially 3rd rule was displaced by the court as judicial interpretation.
investor compensation scheme ltd v west brownwich building 1998.

But The rules of intention and judicial interpretation have no substantial contribution for the
resolution of case National west minister bank v Utrecht America finance ltd.

FUNDAMENTAL BREACH:

The breach of a fundamental term:

The rule of law approach: Clause cannot prevent the liability of a fundamental term how
widely the clause is drafted but unreasonable.

Rule of construction:

Clause will be interpreted against the party relying on it as it is a matter of construction.

The more serious the breach or the consequence of the breach. The less likely the court will
interpret the exclusion clause as applying to the breach.

The interpretation has been laid to rest, now. The Rule of construction is applicable now:
Photoproduction ltd v Securicor transport ltd: Claimant sought to recover the damages from
the defendant whom employee set the fire accidently.

The defendant exclusion clause stated that under no circumstances where the defendant
will be held responsible of dangerous act or default by his employee unless the act was
foreseen and avoided by due diligence.

Court: considered it a matter of construction and held that defendant is not liable.
Exclusion clause will be ineffective:
Term goes into Root of contract: Wallis v karsales ltd 1956: Fundamental breach.

Deliberate refusal to perform the obligations and using clause of exemption: Sze Hai Tong
Bank ltd v Rambler cycle co ltd

AstraZeneca ltd v Albemarle international corp.

A party can’t rely on a misrepresented exclusion clause to other party: Curtis v chemical
cleaning ltd.

Written exclusion clause can be overdriven by an express inconsistent undertaking.

Couchman v Hill.

Note:

COMMON LAW HAS NO POWER TO STRIKE DOWN EXCLUSION CLAUSE.

STATUTE LAW CONTROL TOWARD THE EXCLUSION CLAUSE:

NEGLIGENCE LIABILITY:

SECTION 1(1): Negligence definition:

(a) Breach of any obligation arises by an implied or express term of the contract to take
reasonable care or exercise reasonable skill in the performance of the contract.
(b) Breach of any common law duty to take reasonable care or exercise reasonable skill
(but not any) stricter duty.
(c) Breach of the common duty of care under Occupier liability Act 1957.

Section 2: UCTA Setting for Negligent liability:

1. A person cannot by reference of any contract term or notice given to a person

exclude or restrict his liability for death or personal injury resulting from negligence.

2. In the case of loss or damage other than death or personal injury, a person cannot
exclude his liability for negligence except term of notice satisfies the requirement of
reasonableness.

3. A person awareness of the risk or agreement to the exclusion of negligence liability is

not itself, to be taken as voluntary acceptance of risk.