Exclusion Clauses in Contracts

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The issue is whether the exclusion clause Coaches Ltd intends to rely on was incorporated into the contract, and if so whether it is effective in excluding Coaches Ltd’s liability. The first point is thus whether the exclusion clause was expressly incorporated into the contract. The clause was printed on the back of the invoice sent to Chelsea Ltd after the telephone booking. As the contract was oral and took place over the telephone, this means that the clause was not expressly agreed to by the parties at the time of making the contract, and it is trite law that a party cannot later unilaterally alter the terms of the contract: Olley v Marlborough Court [1949] 1 KB 532. However, the clause may have been incorporated into the contract at the time the contract was made impliedly. The relevant form of implied incorporation here is implication by course of dealing. For this to be established, three requirements must be met. The first is that there must be a course of dealing which was both consistent and regular: McCutcheon v David MacBrayne Ltd [1964] 1 All ER 430. In McCutcheon there had been dealings between the parties on four occasions prior to the one before the court, and the House of Lords found that this was an insufficiently consistent and regular course of dealing to imply a term into the contract. On the other hand, in Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association [1969] 2 AC 31 there had been three or four dealings a month between the parties over a period of three years, totalling roughly one hundred dealings, and this was found to constitute a course of dealing sufficiently consistent and regular to warrant the implication of a term into the contract. Finally, in Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71 there had been three or four previous dealings between the claimant and the defendant garage over the course of five years. Of these, only in two had the claimant been asked to sign an invoice at the bottom of which the clause in question was printed. The Court of Appeal held, following McCutcheon, that the course of dealing was insufficient to justify the implication of the term into the contract. We are told that Chelsea Ltd had hired a coach from Coaches Ltd “without any problems for the last few years”, but we are not given sufficient information to establish, following the cases cited above, whether the course of dealing was sufficiently consistent or regular. The second requirement is that the document in question must have reasonably been expected by the parties to have contractual effect: Chapelton v Barry Urban District Council [1940] 1 KB 532. It could be argued that the invoice in the present instance was not a document which the parties would reasonably have expected to have contractual effect, particularly if the price was agreed over the phone, which would point towards the invoice being a mere post-contractual receipt. This would result in the clause not having been expressly incorporated into the contract: Chapelton (above) and particularly Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163. On the other hand, the document could have contractual effect if, for example, the telephone agreement was subject to the invoice, which had to be signed and returned to Coaches Ltd. Tied in with this is the third requirement that the clause in question must have been reasonably brought to the attention of the other party: Thompson v London, Midland & Scottish Rly Co [1930] 1 KB 41. What is reasonable will depend on the content of the clause, as per Lord Denning’s famous “red hand rule” comments in J Spurling v Bradshaw [1956] 1 WLR 461. We are told that the clause was written on the back of the invoice sent to Chelsea Ltd. It is unclear whether there was any reference to the clause on the front of the invoice, or whether Chelsea Ltd was required to sign the invoice or in any way take notice of it, or whether it was a mere receipt: whether the clause was reasonably brought to the attention of Chelsea Ltd would depend on these facts. Consequently, it seems that there are grounds to argue that the exclusion clause was not successfully incorporated into the contract, and that Coaches Ltd should therefore not be allowed to rely on it. However, supposing for the sake of argument that the clause had been incorporated into the contract, the second issue to be considered is its validity and effectiveness. The clause in question purports to exclude all liability for (i) personal injury and (ii) damage to customers or their belongings howsoever caused, and the two limbs will be considered separately. Section 2(1) of the Unfair Contract Terms Act 1977 (“the Act”) precludes a party from relying on a term or notice to exclude or restrict liability for death or personal injury caused by negligence (as defined in section 1(1)). Consequently, the first limb of the exclusion clause falls foul of this provision in relation to the purported exclusion of liability for personal injury caused by negligence, and is therefore void in this respect and cannot be relied on by Coaches Ltd. On the other hand, section 2(2) of the Act allows a party to rely on a clause excluding or restricting liability for damage other than death or personal injury caused by negligence, but only in so far as the clause is reasonable. The reasonableness test is set out in section 11(1), and is that the term must be one which it was fair and reasonable to include, having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made. It is for Coaches Ltd to show that the clause is reasonable: section 11(5). Following the Court of Appeal decision in Stewart Gill Ltd v Horatio Myer & Co Ltd [1992] QB 600, the clause cannot be severed by the court, and must be taken as a whole when considering reasonableness. As discussed above, the first limb falls foul of the Act, and this points very strongly towards the whole clause being unreasonable and therefore void. Further, liability is purportedly excluded rather than limited, and the clause is very broadly drafted, further factors which point towards unreasonableness. Finally, it should be noted that even if the clause were valid, it must cover the specific damage in issue to protect the defendant from liability. The approach adopted by the courts in construing exclusion clauses is contra proferentem, i.e. clauses will generally be construed against the party relying on it. However, recent cases such as McGeown v Direct Travel Insurance [2003] EWCA Civ 1606 suggest that the strict approach adopted in decisions such as Andrews Bros (Bournemouth) Ltd v Singer and Co Ltd [1934] 1 KB 17 has now been relaxed, particularly in view of the modern approach to interpretation laid out in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 898. In conclusion, it is doubtful whether the clause was incorporated into the contract, and in any event the Act if very likely to prevent its operation. BIBLIOGRAPHY Chitty on Contracts, 29th ed., Sweet & Maxwell, 2004 Dobson, Charlesworth’s Business Law, 16th ed., Sweet & Maxwell, 1997 Keenan and Riches, Business Law, 7th ed., Longman, 2004 McKendrick, Contract Law, 6th ed., Palgrave, 2005 O’Sullivan & Hilliard, The Law of Contract, 2nd ed., Oxford University Press, 2006

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