Case of Burt Co vs Adam Co - Essay Example

In order to advise Adam Co with regard to the enforceability of the exemption clause it will be necessary to firstly consider whether the exemption clause was incorporated into the contract between Adam Co and Burt Co. Secondly, if the clause was successfully incorporated into the contract, it will be necessary to evaluate the legal principles governing validity and enforceability of exclusion clauses. Firstly, there is no issue that Burt Co was negligent in causing damage to Adam Co’s car. Moreover, as this is a contract for services, it is implied under Part II of the Supply of Goods and Services Act 1982 (the Act1) and Section 13 the service will be carried out with reasonable care and skill where it is done in the course of business as in the current scenario. Therefore failure to do so entitles Adam to make a claim for breach of contract and damages or alternatively under the law of negligence2which is what Burt Co is purporting to exclude and limit under its terms of business. The factual scenario indicates that both Adam Co and Burt Co had a regular course of dealings in respect of the Burt Co’s provision of car valet services, which were ostensibly contracted into on Burt Co’s standard terms of business. The issue in contention is whether the contract was for the Deluxe Service and if not, whether the exemption clause was incorporated into the contract. Whilst there is nothing to indicate that Adam Co expressly accepted and signed Burt Co’s standard terms and conditions, it is evident that the process of handing Adam Co Burt Co’s standard terms of business happened approximately eight to nine times within a twelve month period, which will render it difficult for Adam Co to argue that the terms and conditions do not cover the terms and conditions due to the regular course of dealings between the parties3. This in turn is crucial to the enforceability of the exclusion clause4. If we consider this further, the general rule is that an exclusion clause will not have effect unless it satisfies the following requirements: 1) It was incorporated into the contract; 2) As a matter of interpretation, the wording of the clause is effective to exclude liability which otherwise the seller would incur; and 3) The clause is not rendered invalid by either the Unfair Contract Terms Act 1977 (UCTA) or the Unfair Terms in Consumer Regulations 19995. With regard to the current scenario, the most applicable scenario will be incorporation of terms based on previous dealings between the parties. For example, in the case of J Spurling Limited v Bradshaw,6 in circumstances analogous to the current scenario, Bradshaw had received the document with the exemption clause on previous dealings with the defendant on numerous occasions and the Court of Appeal concluded that “by the course of business and conduct of the parties the clause was part of the contract”7. In the Bradshaw case the clause had been incorporated notwithstanding the late arrival of the document containing it on grounds of previous course of dealings between the parties. Moreover, in the case of Henry Kendall & Sons v William Lillico & Sons Limited8 the seller had sold the product to the buyer and similar to Adam Co and Burt Co’s arrangement, the contract between the parties had been made over the telephone but was followed the next day by dispatch of a document and a sold note containing an exemption clause. The conclusion of the oral contract in this manner had been the common practice between the parties over a three year period, during which time there had been three or four transactions. In the case leading to the dispute the delivery of the product had included a poisonous substance and the defendant supplier sought to rely on the exclusion clause to negate a damages claim for breach of contract. The issue in contention was in relation to incorporation of the terms. The House of Lords held that whilst the clause itself arrived too late to be incorporated into the particular transaction, the clause was nevertheless part of the contract on the basis of previous dealings between the parties. In this case the House of Lords further propounded a test towards incorporation of terms on grounds of previous dealings and referred to Lord Diplock’s extrapolations in the case of Hardwick Game Farm v Suffolk Agricultural and Poultry Producer’s Association Limited as follows9: “What each party by his words and conduct reasonably led the other party to believe were the acts he was undertaking a legal duty to perform”10. In the House of Lords decision in the Henry Kendall case, Lord Wilberforce agreed with Lord Diplock and formulated a general test on similar grounds: “The court’s task is to decide what each party to an alleged contract would reasonably concluder from the utterances, writings or conduct of the other11”. Additionally, in the case of Petrotrade Inc v. Texaco Limited12 on the basis of five previous transactions on the same terms and conditions for the same commodity over a 13 month period, Clarke LJ concluded that “given the course of dealing…. Both parties will have made the oral agreement on the basis that the contract would be subject to the same terms as before13”. The situation would be different if one party indicated by words or actions that the particular transaction would not be on the same basis as previous transactions. As such the test is objective and Hoffman et al posit that “it is possible to formulate the test for incorporation from a course of dealings. The test should be whether, at the time of contracting, each party, as a reasonable person, is entitled to infer from the past dealings and the actions and words of the other in the instant case, that the standard clauses are part of the instant contract.14” If we apply this by analogy, to the current scenario, it is evident that over a twelve month period Adam Co has accepted the terms and conditions without question and therefore it is highly likely based on established case law that the exclusion clause will be incorporated by previous course of dealings. As such, the only way Adam Co can argue that the exclusion clause is not applicable is if it can establish that this particular occasion was intended to be a Deluxe service valet in which case the exclusion clause will not be applicable. The onus will be on Adam Co to establish this15. As the exclusion clause is prima facie incorporated into the contract between Adam Co and Burt co, it is necessary to evaluate whether it is valid and enforceable. As both In contracts, a breach of obligation imposed by the contract must be in respect of condition as opposed to warranty to permit an innocent party to terminate the contract and sue for damages16. A fundamental breach will grant the right to sue for damages for the breach. Material breach of contract in contract law is utilised as a reference for repudiatory breach of contract. In the leading case of Suisse Atlantique Societe d’Armement Maritime SA v NV Rotterdamsche Kolen Centralem17, Lord Reid defined fundamental breach as “a well known type of breach which entitles the innocent party to treat it as repudiatory and to rescind the contract18”. As a general principle of law, under the doctrine of fundamental breach of contract, exclusion clauses are deemed to be not available to the party in fundamental breach19. Moreover, in the case of Photo Productions Limited v Securicor Transport Limited 20Lord Denning asserted the rule of law doctrine and extended the rule in the Suisse Atlantique case to apply to all exemption clauses. However, on appeal it was held that the relevant issue in considering enforceability was intention of the parties at the time of the contract. With regard to the exclusion of liability for contractual liability, the effect of section 3(1) of UCTA is that Burt Co cannot exclude liability arising in contract “except in so far as …… the contract term satisfies the requirement of reasonableness”. UCTA does not defined what it means to be reasonable, however it gives guidance and provides that courts must consider the bargaining power of the parties, whether the party affected by the exclusion clause was offered an incentive to enter into the agreement on particular terms, whether the contract is negotiated on standard form or negotiated and whether the exclusion or limitation clause represents a genuine allocation of risk in the contract21. For example, in the case of SAM Business Systems v Hedley and Co22, a software supplier was allowed to rely on an exclusion clause that allowed it to supply an inadequate product23. However, the Technology and Construction Court found that the parties were of relatively equal bargaining power, and the purchasers could have attempted to negotiate better terms at the outset24. Moreover, it was observed that such clauses were standard practice in computing industry. Moreover, section 2(2) provides that “with regard to other loss or damage, a person cannot exclude liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness”. Schedule 2 of UCTA further provides guidelines in respect of what is meant by reasonable. Schedule 2 provides guidance on what will be considered reasonable and in general, the courts will take into account the following: the information available to both parties when the contract was drawn up; whether the contract was negotiated in or standard form; and whether the purchaser had the bargaining power to negotiate better terms25. With regard to the current scenario, as the agreement is contracted on Burt Co’s standard terms, whilst not negating reasonableness per se, it will lead to a factor in Adam Co’s favour in attempting to strike down the validity of the clause. Overall, if both parties are business entities, the courts tend to uphold contractually agreed limitation or exclusion clauses regarding liability for quality and as Burt Co’s standard form contract has been accepted by course of dealings, Adam Co would prima facie be bound by the remedies available under the contract unless it could establish sufficient grounds to strike down the clause. However, notwithstanding the fact that Adam Co is a company, if Adam Co contracted as a consumer, this will strengthen Adam Co’ s position in striking down the clause. Accordingly, unless Adam Co can establish that the clause is unenforceable for not satisfying the UCTA requirements of reasonableness, Burt Co’s liability would be covered by the clause limiting liability to 5 Euros. BIBLIOGRAPHY P. S Atiyah (2005). Sale of Goods.11th Edition Longman. Blackstones Statutes on Contract, Tort and Restitution Chitty on Contracts (2007). 29th Edition Sweet & Maxwell. Jill Poole (2006). Contract law. 8th Edition Oxford University Press. G H. Treitel (2007). The Law of Contract. 12th Revised Edition Sweet & Maxwell. Supply of Goods and Services Act 1989 www.opsi.gov.uk www.berr.gov.uk Read More