Terms & Exclusion Clause – Outline

Question 3 2017 Zone B

Devi is a self-employed dress designer. Her old computer breaks down just as she is completing
a design sketch to send to a client. She rushes to Office Supplies to buy a new computer to use
in her business. She decides to buy a new desk top computer for £2,000. She asks Erich, the
sales assistant, if it is a good computer and whether it will run specified software which is used
for clothes design. Erich says that all computers sold are tested in store before being put on the
shelf for sale and that he knows it will run the specified software. Devi signs an agreement to
purchase the new computer which contains the following terms:

1. Office Supplies will not in any circumstances be liable for physical injury caused by its
products.

2. Office Supplies will not be liable for any damage to property caused by its products.

3. Any other liability of Office Supplies resulting from the sale of defective goods shall be limited
to ten times the value of the goods sold.

As Devi leaves the store she passes and reads a large sign that says:

‘We sell computers at the lowest possible price and so all goods sold in this shop are sold
without any warranty as to quality.’

When she gets back to her office she finds the computer will not run the specified software.
When she returns to the office the next morning she sees that the computer is overheating. As
she approaches, it explodes and burns her arm and expensive cashmere coat. She also suffers
some loss of business while she locates a replacement computer.

Advise Devi.

Answer Outline

Issues to be addressed:

What are Devi’s losses – what she would be suing for:

1. The physical injury to her arm – burns

2. The damage to her cashmere coat – either to repair or buy a new one
3. The damage to her office – table, chairs or any other damage
4. The amount paid for the now useless computer.
5. The loss of business

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All these losses were as a result of the exploding of the computer which she bought from OS.
She would thus want to sue OS for breach of contract for supplying her with a defective
computer. In order for her to sue for breach of contract, she would have to prove that there is a
breach of either an Express Term or an Implied Term. The contract has been reduced to writing
and from the facts there is no mention of any express terms concerning the quality of the
computer. We therefore have to see if there is a breach of Implied Terms.

On the facts of our case, OS seems to be a business entity. Thus they are dealing in the course
of business. We are told that Devi is buying the computer to use in her business as she is a self-
employed designer. The appropriate statute that would apply is SOGA 1979 as this is a B2B
contract.

The section that applies here is section 14(2) SOGA 1979 - Where the seller sells in the course
of his business, there is an implied term that the goods sold must be of satisfactory quality.

Section 14(2A) The quality of goods is satisfactory if they meet the standard that a reasonable
person would consider satisfactory, taking account of:
(a) any description of the goods,
(b) the price or other consideration for the goods (if relevant), and
(c) all the other relevant circumstances

Section 14(2B)- The quality of goods includes:

(a) fitness for all the purposes for which goods of that kind are usually supplied;
(b) appearance and finish;
(c) freedom from minor defects;
(d) safety;
(e) durability.

It is very clear on the facts that the computer is not of satisfactory quality. She paid £ 2,000
which is quite a substantial amount for the said computer, and it is overheating within one day of
purchase and exploded. This clearly is a defective computer which is not safe and durable.
This is a breach of section 14.

There is also a breach of Section 14(3) - the goods supplied must be reasonably fit for any
particular purpose for which the buyer has made known to the seller. Devi had asked Erich, the
sales assistant, if it is a good computer and whether it will run specified software which is used
for clothes design, to which he replied that all computers sold are tested in store before being
put on the shelf for sale and that he knows it will run the specified software. This is not accurate
as when she gets back to her office, she finds the computer will not run the specified software.
Clearly it is not fit for the particular purpose.

Finally, there is a possibility of a beach of Section 13 SOGA – goods sold do not correspond
with the description. If Erich had described the computer and what it can do, then this section is
also breached. In fact, he had assured her that the computers have been tested and they will
perform as described.

Devi would therefore be advised that she would be able to prove a breach of terms which would
give her the right to sue OS and claim her losses. However, she must be advised that OS
would try to rely on the Exclusion Clauses that are found in the contract to exclude or limit their
liability.

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Exclusion / Limitation Clause

In order for OS to rely on the Exclusion Clause, they need to prove that the:

i. The clause is incorporated into the contract and

ii. It is not struck down by the statutory regulations found in UCTA 1977

The first thing that has to be proven is Incorporation.

On the facts of this case there are 2 exclusion clauses to be considered:

a. The exclusion clause terms that are found in the agreement she signed
b. The large sign the shop had placed at the exit of the shop

a. With regards to the terms in the agreement, there will no issue of incorporation as Devi
had signed the contract. Applying the case of L’Estrange v Graucob, Devi will be
bound by whatever she signs, regardless of whether she had read or understood it
unless there is a misrepresentation as to the nature of the document – Curtis v
Chemical Cleaning.

Therefore the following terms will without doubt be incorporated

1. Office Supplies will not in any circumstances be liable for physical injury caused by its
products - EC
2. Office Supplies will not be liable for any damage to property caused by its products - EC
3. Any other liability of Office Supplies resulting from the sale of defective goods shall be
limited to ten times the value of the goods sold - LC

b. With regards to the Large sign - On the facts we are told that as Devi leaves the store
she passes and reads a large sign that says:

‘We sell computers at the lowest possible price and so all goods sold in this shop are sold
without any warranty as to quality.’

The question arises whether OS can rely on this term and totally exclude or limit their liability for
the losses that Devi suffered as a result of the defective computer. Has this term been
incorporated into the contract? The issue to be discussed here is Incorporation by way of
Notice.

We are told that she saw this on her way out, after she had signed the contract. Thus applying
the case of Olley v Marlborough Court, this term will not be incorporated into the contract as it
was notified to the customer (contracting party) after the contract was entered into. The
Exclusion Clause must be brought to the parties’ attention either before or at the time when the
contract was entered into. Thus the sign will have no effect as it was notified too late.

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However it may be argued that the sign would have been placed at the entrance of the shop.
The reason being, we are told that as “she leaves the store” she passes and reads the large
sign. The entrance and the exit of the shop may be at the same place. Thus if the sign is a large
one and is placed at the exit of the ship and the entrance is also at the same place, then she
would have seen the sign. It can be argued that OS has taken enough steps to bring the EC to
the notice of their customers. It would not be their fault if Devi did not take the time to read it as
she came in. If this is the argument that the courts take, then there would be incorporation.

If the entrance and exits are located at different direction/place, then there would be no
incorporation as the sign is placed at the exit.

Once the exclusion is incorporated, the following issues need to be considered:

• courts need to interpret the exclusion clauses to make sure they apply in current
situation. Any ambiguity or uncertainty contained will then be subjected to contra proferentum
rule as per Andrews v Singer.

• Any clause that tend to exclude liability for negligence, the courts will insist on very clear
words to be used as per Canada Steamship Lines v The King emphasized by Lord Morton.
On the facts, “Any liability for consequential loss or damage arising from breach of contract”
could arguably be vague as per White v Joh Warwick as no specifications or express language
used to describe the possible breach as in Monarch Airline v London Luton Airport.

• Moreover, the attitude of courts towards limitation clause has to be noted. As per Ailsa
Craig Fishing v Malvern Fishing, limitation clause will be interpreted less hostile and might be
more acceptable by the courts. There is also an advice for customers to arrange their own
contract insurance included in the clause, mitigating the possible losses, This however is not
followed in Darlington Futures v Delco Australia Pty, acting as a persuasive mechanism against
this approach.

The next issue to be considered is the effect of UCTA 1977 on the above clauses

Clause 1 – Devi’s injury

Sec 2(1) – no one can exclude liability for death or personal injury caused by negligence.
Negligence arises when there is a duty of care imposed and the person fails to exercise the duty
of care. This section will hold such clauses VOID.

On the facts of the case, OS has a duty to supply goods that are not defective and thus they
were negligent which has led to Devi suffering personal injury.

Therefore, Clause 1 will be held as VOID and she can claim all her expenses that arose from
the injury.

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Clause 2 & 3 – Devi’s coat and possibly any office furniture
Section 2(2) liability cannot be excluded for any other loss or damage but only in so far as it
satisfies the requirement of reasonableness under section 11 & Sch 2

‘We sell computers at the lowest possible price and so all goods sold in this shop are sold
without any warranty as to quality.’
Section 6 - Liability for breach of the obligations arising from section 13, 14 or 15 SOGA 1979
cannot be excluded unless it satisfies the test of reasonableness.

Section 11 – defines the test for determining reasonableness and Schedule 2 provides
guidelines. To determine whether or not an exemption clause is reasonable, the court has to
consider the strength of the parties’ bargaining position, whether or not there was any
inducement to enter into the contract, whether or not the goods in question was made by special
order, whether or not reasonable notice was given about the existence of the clause, and the
extent of the clause.

As per George Mitchell v Finney Lock Seeds, it is a question of fact. The burden of proof is on
OS since they are relying on the exclusion clause, as outlined in section 11(5). There are
several issues must be considered, including the bargaining powers, resources available and
circumstances during the time entering contract.

Bargaining power, which is one of the key factors - Overseas Medical Supplies v Orient
Transport Services

In determining if the clauses are reasonable on the facts, the courts will take into account that
Devi is a business person and thus she could be bargaining at arm’s length (Watford
Electronics v Sanderson. However, she could be a one person business as she is self-
employed. Thus it could be a very small business whereas OS is a more established business
and thus more experienced. So the courts may conclude that they are not at the same
bargaining position.

Further, OS may have a lot more resources at their disposal. The possibility of having
insurance – OS being a bigger company may have insurance against such liabilities.

Thus the courts would have to decide based on the facts if the clauses are reasonable and thus
VALID or unreasonable and therefore VOID.

Finally Clause 3 is a limitation clause. Applying the case of Ailsa Craig v Malvern Fishing, the
courts are more willing to uphold LC rather than EC. However this also has to be seen based
on the facts of the case.

In conclusion, Devi would be able to claim for her losses. However with regards to her loss of
profits, the issue would be if it can be quantified under Expectation Loss. Would this be too
speculative for the courts to quantify?

The other difficulty that would arise with regards to this claim is if it can satisfy the test of
remoteness as found in the cases of Hadley v Baxendale & Victoria Laundry v Newman
Industries

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General remarks
The question is about express and implied terms and exclusion or limitation clauses. Students
should note at the outset that this is a B2B contract and so UCTA 1977 and not the CRA 2015
will apply. Marks are given for good technique in answering the question especially those who
try to identify what liability would arise without the relevant clauses, before considering the effect
of the different clauses. Many jumped straight in to how the exclusions work without considering
what claims are possible.

Common errors
Failing to identify that Devi was buying a computer for her business and so was not a consumer.
The whole question was then addressed using the wrong legislation (CRA rather than UCTA).
Also, many wasted time talking about possible misrepresentation by the shop assistant, Erich,
when the key claim would be for breach of contract not misrepresentation.

Question 5, 2018 Zone A & B

Ivan Earing is the University of Blue Skye’s dynamic, but naive, Vice Chancellor who is
developing an ‘electronic campus’ to reduce staff costs. He hears about a new robotic professor
being sold by Logik plc. Ivan visits Logik to see a demonstration of the robot which is called
‘Professor Bright’. Ivan is so impressed he immediately signs a contract to buy one for £200,000
for the Law School. The contract contains the following provision:

1. Logik plc gives no warranty or assurance that any equipment provided is of satisfactory
quality.

The robot is delivered to the campus where Lurch takes delivery. Lurch signs a document
headed ‘Delivery Note’ which repeats term 1 above but also has the extra clause below:

2. Logik plc shall not be responsible for any damage to property caused by their equipment.

Ivan attends the robot’s first lecture in the Law School when ‘Professor Bright’ appears to get
very excited when discussing the doctrine of past consideration and waves ‘his’ arms wildly.
Unfortunately one of his hands flies off and damages the University laptop which Ivan was
using. The robot then overheats and is ruined but causes no further damage.

Discuss the contractual liability of Logik arising from the above facts.

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 Question 4, 2020 Zone B July

Kingston is renovating his home and wishes to buy a floor sander for his newly-laid wooden
B2C floors. He visits Handy Sandy, a local shop, and selects a suitable model. When he arrives at
By way
the cash desk he notices a sign beside the cashier informing customers that “all terms and
of Notice
conditions can be found on our website, www.handysandy.co.uk”. Kingston does not own a
smartphone and is therefore unable to visit the company’s website before making a purchase.
He goes ahead and pays for the floor sander. Unfortunately, Johnnie, an employee at Handy
Sandy, has supplied Kingston with the incorrect sanding discs. When Kingston returns home Not fit for
and starts to operate the floor sander it removes several layers of wood causing £4,000 worth of purpose
damage to the floor.

B2B Lucy owns a construction company and visits Handy Sandy several times a month to buy tools
for her business. She needs to purchase a drill but is especially busy this week and, rather than Course of
visiting Handy Sandy to make the purchase, she concludes the contract by email. Handy Sandy Dealings
forget to attach to the email their terms and conditions. Johnnie delivers the drill to Lucy later
Exercising that afternoon, but when he arrives at her business premises he trips, smashing the drill into a
reasonable
glass door. Lucy needs to replace the glass door which costs £2,000.
care and
skill Both Kingston and Lucy wish to claim damages for their losses. Handy Sandy point to a term in
their contract which states, ‘Handy Sandy limit their liability for all damage, whatsoever and
howsoever caused to £250’.

Advise Kingston and Lucy

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Question 4 2019 Zone B

Loki visits his local tropical fish shop, Aquatix, in order to restock his aquarium. He chooses a
selection of fish and goes to the cash desk to pay. There is a notice at the cash desk that says,
‘customers can request a copy of Aquatix’s terms and conditions from the cashier’. Loki is not
wearing his reading glasses and does not clearly see what is written on the notice. Before
paying for the fish, Roach, the sales assistant offers him a monthly Aquatix subscription
whereby if he pays £30 per month for one calendar year, each month he can choose two fish as
well as a monthly stock of aquarium cleaning products and fish food. He agrees and pays the
first month’s subscription.

Loki takes his new fish home. Five days later all the fish in his tank have died, including his
expensive Angel fish that he has had for several years. He realises that Roach has accidentally
put the wrong chemicals in the water with the new fish. Furious, he returns to Aquatix, to
demand £500 in compensation to replace all the fish in his tank. He also refuses to continue
with the subscription service. Roach hands him a copy of Aquatix’s terms and conditions which
state:

(i) Liability for damage by employees of Aquatix, whatsoever and howsoever caused, is
limited to £10.

(ii) (ii) The minimum subscription length is for 12 months. Subscribers wishing to cancel
before this period will need to pay a sum of £300.

Advise Loki.

Answer Guide

A. The issues to be considered:

a. Can L claim for all the dead fish in his tank - £500
b. The expensive Angel fish he has had for several years; and
c. Does he need to pay the £300 cancellation fee?

B. Is there a breach of contract? What are the terms that Aquatix have breached?
Express Term – nothing mentioned on the facts

Implied Terms – B2C contract

Consumer Rights Act 2015
Section 9 & section 10 – goods provided must be of satisfactory quality and fit for its
purpose
Section 49 – any services provided must be done with reasonable care and skill

On the facts – Roach accidentally put the wrong chemicals in the water with the new fish

Thus there is Breach of Term – Sue for Breach Of Contract

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C. Can Aquatix rely on the EC?

Two issues to be considered:

1. Common Law Controls

A. Are the two clauses are incorporated into the contract?

i. Signature – not on the facts

ii. Notice given to L at the time. –to be discussed on the facts

a. Time of the Notice

b. Document on which the Exclusion Clause is printed
c. Reasonable steps taken to bring it to the notice of the Claimant

- Thornton v Shoe Lane Parking

- Parker v South Eastern Railway
- Spurling v Bradshaw
- Olley v Marlborough Hotel,
- Curtis v Chemical Cleaning

o He chooses a selection of fish and goes to the cash desk to pay.

o There is a notice at the cash desk that says, ‘customers can request a copy of
Aquatix’s terms and conditions from the cashier’.
The Exclusion Clause was brought to the notice of the customer before the contract
= was it sufficiently clear
Nothing vague
The notice will also be considered as a valid document to notify people of the terms
Sufficient steps taken to bring the terms and conditions to the attention of the
customers

o Loki is not wearing his reading glasses and does not clearly see what is written on
the notice.
This is Loki’s fault
The shop is not expected to know if their customers can see or read
It was not mentioned that the notice was in small fine print

o Before paying for the fish, Roach, the sales assistant offers him a monthly Aquatix
subscription whereby if he pays £30 per month for one calendar year, each month
he can choose two fish as well as a monthly stock of aquarium cleaning products
and fish food. He agrees and pays the first month’s subscription.
Loki was not informed of any terms with regards to the membership

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 iii. Course of dealings – “Loki visits his local tropical fish shop …” could this possibly apply
Kendall (Henry) & Sons v Lillico (William) & Sons Ltd [1969]
Hollier v Rambler Motors (AMC) Ltd [1972]

McCutcheon v MacBrayne [1964]- regular dealings, but the document containing the
exclusion clause was not always used = No incorporation

B. Consider whether clauses cover the alleged breaches. Courts attitude between Exclusion
Clause and Limitation Clauses – Canada Steamship

2. The statutory regulation of these terms Consumer Rights Act 2015

There is No Personal Injury

There is Damage to Property
There is a Term that is within the Grey List

Statutory regulation - CRA 2015 applies.

a. Section 62 and the unfairness test.
b. Grey list under Schedule 2 for the indicative list of terms that are unfair.

Question 5, 2022 May Zone B

‘The statutory control of exclusion clauses in so-called ‘B2B’ contracts is complex and perhaps
also unnecessary.’

Discuss.

Question 8, 2022 May Zone B

What is the difference between implication in fact and implication in law in the context of terms
implied into a contract? Do you consider one of these techniques to be more easily justified than
the other, and if so, why? Illustrate your answer with relevant cases.

Question 4, 2021 Oct Zone B

‘Section 64 of the Consumer Rights Act 2015 is reflective of a balance drawn by the legislature
between freedom of contract and consumer protection. However, the courts have interpreted
the provision in a way that almost completely undermines the consumer protection objectives of
the legislation.’ Discuss.

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Question 4, 2022 May Zone A

Hassan is a ‘big’ news reporter; he is two metres tall! His employer, Goodbye Magazine, is
sending him to cover a celebrity wedding in the Bahamas. Hassan books his flight and a ‘luxury’
room with a king-sized bed with Business Travel plc. The booking form which he signs includes
the following clauses:

1. Business Travel plc reserves the right to substitute any alternative accommodation for that
booked.

2. Business Travel plc does not accept responsibility for any personal injuries suffered by their
clients.

While driving to the airport, Hassan realises he has almost run out of petrol. He stops at a
garage and pays for 50 litres of petrol. Unfortunately, the pump malfunctions and only 1 litre of
petrol is put in his tank. As a result, he runs out of petrol and misses his flight. He is able to
catch the next flight but misses the wedding ceremony and only arrives in time to report on the
post wedding party.

After an exhausting day he goes to his hotel to find that he has been allocated a small ‘economy
room’ with a small bed. Hassan falls out of the bed in the night and breaks his arm.

Discuss.

Question 5, 2021 May Zone A

Veronica wants to arrange for her dog, Felix, to be professionally photographed as a birthday
present for her husband. She visits the website of a company called ‘Pawtraits’. There is a box
on its homepage which asks her to tick ‘I agree’ to confirm that she has read their terms and
conditions. She ticks the box without reading the text and arranges for Pawtraits’ photographer,
Angela, to come to her house to shoot the photo.

During the phot shoot, Angela’s tripod tips over, smashing Veronica’s glass table, worth £500, to
pieces. Felix gets glass in his paw and needs veterinary treatment costing £400. Veronica later
receives an invoice demanding £200 more than the amount she had originally agreed for the
photography service. Pawtraits inform Veronica that this is due to a rise in the price of
photographic materials.

When Veronica looks at the terms and conditions of her contract with Pawtraits she notices the
following terms:

a) Pawtraits limit their liability for any damage whatsoever and howsoever caused to £150;

b) Pawtraits may increase the cost of the service if a rise in market prices make this necessary.

Advise Veronica.

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Question 4 2020 Oct Zone A

‘Historically the courts have always been hostile towards exclusion clauses using many different
techniques and devices to control their use. Such indirect control is now no longer necessary as
the courts can regulate their use by reliance upon statutory provisions.’

Discuss.

Question 6, 2020 Zone A July

‘The exclusions from the test of unfairness that are set out in section 64 of the Consumer Rights
Act 2015 are difficult to reconcile with the consumer protection aims of the Act. This is even
more evident when one examines the case law that interprets this so-called “core term”
exclusion.’

Discuss.

Question 7, 2020 Zone A July

‘It is sometimes difficult to identify the basis upon which a term is implied into a contract.’
Discuss.

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