LAW212 – Session Two - Workshop

INCORPORATION OF TERMS,
EXEMPTION CLAUSES AND THE
EXCLUSION OF LIABILITY

The purpose of this tutorial is to remind ourselves of the incorporation of terms

and to consider the effectiveness of clauses which purport to exclude or restrict
various kinds of liability.

Reading:
You will be expected to read the chapters on Incorporation and
Exclusion/limitation of Liability in your preferred textbook. You may already
have a preferred text, but it is often useful to check in with other texts from time
to time as the approach of different authors my provide something more to your
understanding.

- Exclusion clauses are not always bad, sometimes they just try and balance
the responsibility between the parties
1. First, we need to know if the clause is incorporated into the
contract
2. And then if the other party was notified of it
3. Then the courts must construe (interpret) the contract
 Courts don’t like negligence clauses, and therefore demand
that negligence is in the wording of the clause
Cases:
Olley v Marlborobugh Court Hotel [1949] 1 KB 532, [1949] 1 All ER
127 – Incorporation of a term of a contract by notice is only possible
if the notice is made before or at the time of contract formation
- C registered and paid at the reception of D’s hotel
- C saw the notice from D of liability for lost or stolen articles,
exempting D from liability
- C had her coat stolen, due to the negligence of D’s staff
allowing a thief into the room

Held
- D was liable as the notice had come too late
- The exemption was not incorporated into the contract, as the
contract had already been made at the reception.

Interfoto Picture Library Ltd. v Stiletto Visual Programmes Ltd. [1989]

QB 433, [1988] 1 All ER 348, [1988] 2 WLR 615 – More onerous the
term, the more that needs to be done to provide reasonable notice to
the offeree so as the incorporate the term into the contract
Facts
- D, an advertising firm, ordered photographic transparencies
from C
- C sent 47 of them with a delivery note, stipulating a holding fee
of 5 quid per day per transparency retained past the stipulated
period
- D was invoiced for almost 4K quid, when it returned the
transparencies 2 weeks late

Issue
- Was the term in the delivery note incorporated into the contract

Held
- Term was onerous, and the delivery note did not do enough to
draw it to D’s attention
- The amount claimed was substituted for a quantam meruit
award of 3.50 per transparency per week, based on a fair market
value.
 Canada Steamship Lines v The King [1952] AC 192
Facts
- CS entered into a crown lease, for 12 years. They therefore
became the tenant in this particular place
- The lease contained the exclusion clause which related to a shed
that was also on the property – C would not have any claim for
damage to goods which were stored in the shed (if any goods
were damaged, C could not bring up a claim about it)
- D had the duty of maintaining the shed and there was a
improper and negligence practie in which it was set on fire,
burning down the entire shed.
- This caused damage to C, of which they sought to sue D, but D
asserted no liability due to the exclusion clause.

Held
- The exclusion clause, and a different indemnity clause were
ambiguous
- The issue of negligence may be irrelevant, as strict liability
could apply due to D’s failure to keep the shed in good repair
- A test was established here, by Lord Morton as such;
o 1; Express excemptions for the proferens
 If the clause says the D is exempt from
consequences caused by their workers, follow that
o 2; No explicit mention of negligence
 Check if the words are broad enough to cover
negligence by the D
o 3; Consideration of other grounds
 If the words are broad enough, see if damages can
be based on reasons other than negligence
-

Watford Electronics Ltd. v Sanderson CFL Ltd. [2001] EWCA CIV 317,
[2001] 1 All ER (Comm) 696 ?
Facts
- C was a family-owned business involved in selling computers
 - C needed a new software system for their orders, so discussing
requirements with D, and entering into a contract for the supply
of a system which failed to perform properly after installation
- The contract, however, stated a clause that the entirety of the
contract was included in the documents and the parties agreed
that no statements or representations by the parties had been
relied upon when entering into the contract.
- C claimed that, due to the failure of the software system, the
limitation clause was invalid for unreasonableness. D appealed

Issue
- Concerned whether a clause in pre-contractual discussions
could be excluded from any considerations of liability in a
general sense

Held
- Held that the trial judge had made mistakes in failing to identify
the full scope of the clause because it did not completely
exclude any pre-contractual considerations, he failed to
recognise a clause in an agenda to the contract which required D
to take all reasonable steps to minimise C’s losses, and he
wrongly treated C’s standard terms of business as irrelevant of
the commercial considerations which would lead to the
inclusion of a limitation clause

Director of Fair Trading v First National Bank [2001] UKHL 52, [2001]
2 All ER (Comm) 1000, [2002] 1 All ER 97
Facts
- HOL determined the question of whether a clause provided that
interest at the contractually agreed upon price, was payable after
a judgement, came within regulaton 3 of the 1995 regulations

Held
- This did not represent a core term under the regulations,
notwithstanding the fact that It was an agreed term representing
the price of remuneration.
 Office of Fair Trading and Abbey National plc [2009] UKSC 6, [2010] 1
AC 696

Transocean Drilling UK Ltd v Providence Resources Plc [2016] EWCA

Civ 372

Persimmon Homes v Ove Arup [2017] EWCA 373

Statute:
Unfair Contract Terms Act 1977
- What;
o Imposes further limits on the extent to which there is civil
liability for breach of contract, negligence, or any other
breach of duty
- 1; Scope of liability
- 2; avoidance of liablity for negligence, breach of contract
- 3; liability arising in contract
Consumer Rights Act 2015
- Is an act that protects the rights of consumers in their purchase
of goods

Articles:
Adams and Brownsword, ‘The Unfair Contract Terms Act: A Decade of
Discretion’ (1988) 104 LQR 94

White, ‘Defining “exclusion clauses” and “defining” clauses: the need to

clarify the scope of the UCTA 77’ [2016] JBL 373

Further Reading:
 Gilliker, P. (2017). The Consumer Rights Act 2015 – a bastion of
European consumer rights? Legal Studies, 37 (1) 78-102

Your client is Tony Smith…

Tony has contracted with Neil for the construction of Greenmeadows. After a
number of legal wrangles arising from their earlier contract for the construction
of Greenacres, Tony and Neil decide simply to shake hands – which is a bit
silly, but can still be done, as some contracts don’t require particular formalities
- on the deal for Greenmeadows. The day after they have shaken hands on the
deal, Neil sends Tony a written aide memoire summarising the principal heads
of agreement – this would be valid, if it was really not new information - and
stating that the contract is subject to Neil’s usual terms and conditions – this
would not, if it was new information.

One of Neil’s standard terms and conditions provides:

“The contractor accepts no responsibility for any loss or damage whatever or

howsoever occasioned (but not negligence for vis himself because the word or a
close synonym was not used for the contractor, he might be saying that he Is
excluding his own liability for clement – anything from clement’s actions
should be clement’s problem, and something only referring to him) nor for the
negligence of any other party to the building project.” (here he is excluding
negligence for his company, and his workers – Neil’s not saying that clement
won’t be liable, but that he is not liable for clement’s actions)
- This clause doesn’t do much except shift responsibility and
liability from Neil to clement / third parties

During the work, Neil has occasion to use a JCB machine that he has hired for
the contract from Clement. Tony is on site to discuss the project when, as a
result of the joint carelessness of Neil and Clement (who is operating the JCB),
the JCB collides with Tony’s car. The car is damaged - as personal property,
you can’t exclude liability 2(2) unless there is a proper exclusion for it, or there
is reasonableness for it within the contract. - and Tony suffers a broken leg
(2(1) unfair contract law – you cannot exclude liability for personal injury
resulting from negligence)
Tony wants to know whether the exclusion clause in Neil’s standard terms is in
fact part of the contract and, if so, whether it will defeat his claim for
compensation against Neil and Clement (the exclusion clause does not help
clement, but helps Neil’s responsibility for clement, it actually throws clement
under the bus)

Facts
- Neil sends tony a memoire summarising the terms and
conditions that the contract is subject to (neils conditions)
- Neil provides the above statement of exclusion of liability for
negligence
- Because of Neil and Clement’s carelessness, Neil’s JCB
collides w Tony’s car
o Car is damaged
o Tony suffers a broken leg
- Does the exclusion clause defeat Neil’s liability, and Tony’s
claim for compensation

- First see what the term means

- How do we know if a term was incorporated into a contract

- Notice
o There was incorporation by notice, which must’ve been
given at or before the time of contracting
o This notice was given the day after they shook hands
though… or was it at the time
 To see if it was at the time, we must see that all the
elements of a contract have not been fulfilled
(Offer has been made, acceptance was made in the
form of shaking hands, did they both intend it to be
legally binding? Consideration was imposed)
o The terms contained were intended to have contractual
effect
o And, reasonable steps were taken to bring attention to the
terms to the other party – 2/3 requirements fulfilled
 Reasonable steps were not taken to show Tony the
terms Neil had before the contract was formed,
 making it unreasonable for it to be considered as
part of the contract, as Tony was fully unaware
until after the shaking of the hands, and thus after
the actual contract was formed.
o We must see if the exclusion clause was reasonable,
subject to a test, since the clause seeks to exclude liability
for negligence
 The clause states they don’t accept liability for
negligence of himself though he doesn’t accept
negligence responsibility by a third party.
o And, it excludes liability of third party involvement,
however, it does not state anything in particular about
joint carelessness is a synonym of negligence – Neil
hasn’t excluded liability for his own carelessness, but he
has excluded his liability for clement (clement has his
own liability) so while it was the joint carelessness not
explicitly said in the exclusion clause, it can be construed
from the exclusion clause, and then we move on to
discuss the consequences regarding the damage to
personal property and personal injury.
 The statement accepts no responsibility for
himself, and adds on, nor for the negligence of any
other party. It does not detail the joint carelessness
of both individuals (though, this may simply be
reasonably implied)

The contractor accepts no responsibility for any loss or damage whatever or

howsoever occasioned nor for the negligence of any other party to the building
project.”

Tony can probably claim for compensation based on tortious (negligence) and contractual
grounds

Consider how you might respond to the following

Whilst it is generally considered that a contract is an agreement arrived at by the
parties, and thereafter freely entered into, the approach of the courts and
legislature, in relation to the question of exclusion clauses, suggests that in
reality that freedom exists only within certain parameters.

Critically discuss.