Chapter 6 Guidance for end of chapter questions

Exemption clauses

Question

Bob regularly hires a rubbish skip from Tidy Skips. On each of the last five occasions, the invoice, received afterwards, has had the following printed on the reverse: ‘Tidy Skips shall not be liable for any loss or damage howsoever caused to the customer’s premises and if, notwithstanding the foregoing, any liability for damage to customer’s property should arise, that liability shall be limited to a total of £100.’

Bob telephones Tidy Skips and orders a skip to be delivered on the following day. Syd, an employee of Tidy Skips, negligently drives the delivery vehicle into Bob’s wall causing it to collapse on to Bob’s new vehicle. The wall costs £500 to rebuild and the repairs to the vehicle cost £800.

Advise Bob, a) where he is a joiner hiring skips for his commercial premises, b) where he is a DIY enthusiast hiring skips at his domestic premises.

Answer

The best way to tackle a problem question involving an exemption clause is to ask the following questions:

  1. What is the liability sought to be excluded?
  2. Has the exemption clause been incorporated into the contract?
  3. If so, can it be interpreted to exclude the liability?
  4. Is the exemption clause rendered ineffective to any extent under UCTA or the CDA 2015?

You could organise your answer to the current problem in the following way:

Paragraph 1 - Liability

The liability in question is Tidy Skips' breach of its duty of care to drive their vehicle with reasonable skill and care. They are, at first sight, liable to pay £1300 (£500 + £800) in damages.

Paragraph 2 - Incorporation

An exemption clause must be incorporated into the contract at the time of contracting (Olley v Marlborough Court Ltd. (1949)) therefore the fact that the exemption clause might appear on the invoice sent to Bill is too late as the contract appears to have been concluded on the telephone.

However, it is possible that the exemption clause may have been incorporated into the contract by the parties' course of dealing (as in Hardwick Game Farm v Suffolk AA (1969)). We know that Bob and Tidy Skips have contracted on 5 previous occasions and the frequency of these dealings may affect a court's willingness to incorporate a term on this basis. You should also point out that it is not at all clear that the parties ever incorporated the exemption clause into their previous contracts if the clause was only ever included on the invoice sent after the conclusion of a contract. The courts would be quicker to find that the clause is incorporated where Bob is a joiner and particularly if the exemption clause is common in the trade than if he is a consumer (compare British Crane Hire v Ipswich Plant Hire with Hollier v Rambler Motors)

Paragraph 3 - Interpretation

The clause can easily be split into two: an exclusion of all liability for any loss or damage to premises; and a limitation of liability for damages to property. Clearly the damage to the car cannot be excluded since the car is not covered by the word premises but it may be limited by the second part of the clause referring to property - you could mention the contra preferentem rule and cases such as Houghton v Trafalgar Insurance here.

The clause seeks to exclude liability for negligence and so you should mention and apply the Canada Steamship guidelines. The clause does not expressly exclude negligence and so you should argue whether or not there are any other heads of liability that it may cover; e.g. are the facts closer to The Raphael or EE Caledonian v Orbit Value?

The limitation clause may be treated more leniently (see Lord Wilberforce in Ailsa Craig Fishing) and may be severable from the exemption clause if the latter is ineffective. You may note in favour of not enforcing the limitation clause that the limit - £100 - represents less than 10% of the actual damages. Again any questions of interpretation are likely to be applied more strictly against Tidy Skips where Bob is a DIY consumer rather than a joiner acting in the course of his business.

Paragraph 4 – Statutory Control

The first question now is whether it is UCTA or the CDA that contains the relevant controls. This depends on whether Bob is a consumer, within the definition in s.2(3) CDA, “an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession”.

Clearly in situation a) in the question, Bob is a joiner in business at his commercial premises so he is not acting outside his trade or business etc and therefore he is not a consumer for the purposes of the CDA in part a) of the question. The relevant statutory controls for this part of the question are therefore still to be found in UCTA 1977.

You should note that UCTA applies to exclusions of 'business liability' (s.1(3)) and that the liability in question clearly arose from things done by Tidy Skips 'in the course of business.' The first part of the clause seeks to exclude liability for damage to premises and might be attacked on the basis that it seeks to exclude liability for negligence and must therefore be reasonable (s.2(2)).Refer to s.11 of UCTA and the burden of proof under s11(5) and the test under s.11(1) of whether the term was a fair and reasonable one to have included at the time of the contract and how this test was interpreted in Stewart Gill v Horatio Myer. You should also refer to the factors mentioned in Schedule 2 of the Act and the case law discussing them and factors a), b) and c) could all have some relevance here. If the exclusion of liability is found not to be reasonable, the question then arises as to whether the second half of the clause limiting the liability to £100 might yet be reasonable. In answering this point, reference should be made to s.11(4) and the factors mentioned there and note the discussion in Regus v Epcot about whether the limitation clause can be severed from the exclusion clause.

Under part b) of the question however, Bob clearly is a consumer under the definition in the CDA (and Tidy Skips would find it impossible to discharge the burden, which is on them, to show that he is not) The contract is, in part, one to supply a service (the delivery and removal of the skip) and s.57 (1) is therefore relevant which states

“A term of a contract to supply services is not binding on the consumer to the extent that it would exclude the trader’s liability arising under section 49 (service to be performed with reasonable care and skill).

The clause is therefore ineffective to the extent that it purports to exclude liability.

What about the limitation aspect of the clause. Can the clause nevertheless limit the liability to £100 in total. Section 57(3) appears to deal with this. It says

 A term of a contract to supply services is not binding on the consumer to the extent that it would restrict the trader’s liability arising under any of sections 49 and 50 …. if it would prevent the consumer in an appropriate case from recovering the price paid or the value of any other consideration.

This is rather obscurely worded and it is not clear that is it applicable here in the sense that Bob is suing for damages rather than recovering the price but it could possibly be interpreted effectively to make the price paid the minimum amount that recovery can be limited to. We are not told what price Bob paid but on this view, if he only paid £50 for a few days hire, the clause limiting his recovery to £100 might still be effective. If he paid say £150 for a longer hire, then the limitation could not be any lower than £150. 

As far as Part 2 of the CDA is concerned, the clause is not caught by s.65 since although it excludes liability for negligence, it is not liability for death or personal injury. It is however subject to the general test of unfairness under s.62 and it is no longer relevant or required that it is not individually negotiated. It is not excluded from assessment on the basis that it specifies the main subject matter or involves the assessment of the fairness of the price (even if it did the question would arise whether it was transparent and prominent, the latter being an issue in particular, given it was only in the invoice).

Paragraph 5 - Conclusion

It can sometime be tricky to draw together all the threads of your answer to a problem question and you should be aware that this is not the place to repeat all the above analysis. If there have been a lot of 'if this is the case, then the following analysis applies…', as in the current problem, you may not be able to give a definitive answer but you may want to use a couple of sentences to explain what you think are the essential issues in relation to the key points as in the following example.

The main points seem to be that as far as the common law is concerned the exclusion clause clearly does not exclude damage to the car as a matter of interpretation and may or may not be interpreted to cover negligence in relation to the wall (premises) or be effective in imposing a limitation on liability. 

As far as statutory control is concerned, in a) it is UCTA that applies and the question is whether the exclusion of liability in relation to the premises is reasonable as a result of s.2(2) and also whether the limitation of liability is reasonable bearing in mind s.11(4).

In case b), the exclusion of liability for the damage to the wall is definitely ineffective under s.57(1) and the limitation clause may or may not be effective as a result of s.57(3) or may or may not be regarded as unfair under s.62.