Business Law Situations - Essay Example

BUSINESS LAW Mark’s case raises the following legal issues; Exclusion clauses, and unfair contract terms. Exclusion or exemption or exceptions clauses are terms which exclude or limit, or purport to exclude or limit, a liability which would otherwise arise at common law, or by statute, or under the terms of the contract. It should be noted that if used correctly, devices of this type are legitimate. If a contract containing an exclusion clause is freely negotiated and concluded, the courts may uphold the clause. This freedom between the parties to enter into bargain of their choice, free of interference from the courts symbolizes one of the basic principles of the English law of contract. The opportunity for abuse of exclusion clauses is great, particularly with the advent of standard form contracts, where the terms of contracts are not negotiated, but rather imposed. It is against this background that the law seeks to exercise control over exclusion clauses. Whilst the common law rules do not differentiate between contracts made between businesses and those made between businesses and consumers, the law does recognize the great opportunity for businesses to exploit consumers as seen in Mark’s case. An exclusion clause will only operate if it is a part of the contract. The simplest way in which an exclusion clause may become a term of a contract is if it is a written document which is signed by the parties. In this instance the parties are taken to have assented to the clause. In L’Estrange v Graucob1, the defendant sold to the claimant, Miss L’Estrange, who owned a café in Llandudno, a cigarette slot machine, inserting in the sales agreement the following clause:” Any express or implied condition, statement or warranty, statutory or otherwise, is hereby excluded.” The claimant signed the agreement but did not read the relevant clause, because she thought it was merely an order form, and she sued for breach of what is now s.14(3) of the Sale of goods Act 1979, in respect of the unsatisfactory nature of the machine supplied which often jummed and soon became unusable. It was held that the clause was binding and the claim failed, although the defendants made no attempt to read the document to her nor call her attention to the clause. “Where a document contains contractual terms is signed, then in the absence of fraud, or I will add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not.”2 In Curtis v Chemical Cleaning & Dying Co.3, the claimant took a wedding dress, with beads and sequins to the defendant’s shop for cleaning. She was asked to sign a receipt which contained the following clause:” This article is accepted on condition that the company is not liable for any damage howsoever arising.” The claimant said in her evidence:” When I was asked to sign the document, I asked why? The assistant said I was to accept any responsibility for damage to beads and sequins. I did not read it all before I signed it.” The dress was returned stained, and the claimant sued for damages. It was held that the company could not rely on the clause because the assistant had misrepresented the effect of the document so that the claimant was merely running the risk of damage to the beads and sequins. If the clause appears in a document which has not been signed or on a notice on a wall at the place where the contract is made, then, whether or not the clause is incorporated depends upon the rules relating to notice. The basic rule of notice is that the clause will only be incorporated if the person relying on the exclusion clause took reasonable steps to draw it to the attention of the other party. This does not mean that the other party must have the actual knowledge of the clause. But if there is evidence to suggest that that person does have actual knowledge then the clause is part of the contract. In determining if reasonable steps have been taken to draw the clause to the attention of the other party the following points need to be considered: (a) Is the document containing the clause contractual in nature or merely in the nature of a receipt? If the document is a receipt then it is not reasonable to expect that such will contain important contractual terms. In Chapleton v Barry UDC4, the claimant Chapleton wished to hire deck chairs and went to a pile owned by the defendants, behind which was a notice stating:” Hire of chairs 2d per session of three hours.” The claimant took two chairs, paid for them, and received two tickets which he put into his pocket after merely glancing at them. One of the chairs collapsed and he was injured. A notice on the back of the ticket provided that:” The council will not be liable for any accident or damage arising from hire of chairs.” The claimant sued for damages and the council sought to rely on the clause in the ticket. The court held that the clause was not binding. The board by the chairs made no attempt to limit the liability and it was unreasonable to communicate conditions by means of a mere receipt. (b) How is the clause presented? Is it prominently displayed or hidden in amongst other terms or, if in the form of a notice, is it small or obscured? The steps to bring the clause to the attention of the other party depends very much upon the facts of the case. More commonly, the clause will be presented as part of a set of standard terms, which the other party will be given or referred to at the time of making the contract. In that situation, the test is whether ‘reasonable notice’ of the clause has been given. This test was stated in Parker v South Eastern Railway5 where a clause was contained on a cloakroom ticket, given in exchange for the deposit of a bag. The front of the ticket, which contained a number and date, also said ‘see back’. On the other side of the ticket were various clauses, including one excluding liability for goods exceeding the value of 10 pounds. The claimant’s bag, worth 24.50 pounds, had been lost. The jury had found that the claimant had not read the ticket, nor was he under any obligation to do so. On that basis, the judge had directed that judgment should be given for the claimant. The court of Appeal ordered a new trial, on the basis that the proper test was whether the defendants had given reasonable notice of the conditions contained on the ticket. “I am of the of the opinion, therefore, that the proper direction to leave to the jury in these cases is that if the person receiving the ticket did not see or know that there was any writing on the ticket, he is not bound by the conditions…..”6 In Thompson v LM & S Rly C.7, Thompson, who could not read asked her niece to buy her an excursion ticket to Manchester from Darwin and back, on the front of which were printed words:” Excursion. For conditions see back.” On the back was a notice that the ticket was issued subject to the conditions in the company’s timetables, which excluded liability for injury however caused. Thompson was injured and claimed damages. The court contended that she had constructive notice of the conditions which had, in the court’s view, been properly communicated to the ordinary passenger. The action thus failed. In Thornton v Show Lane Parking Ltd8, a clause displayed on a notice inside a car park, containing extensive exclusions, was held not to be incorporated into a contract which was made by the purchase of a ticket from a machine. (c) At what time was the contract formed? For a clause to be incorporated, it must be notified before, or at the time the contract is formed. If the clause is notified after the contract is made, then it will not be incorporated. In Olley v Marlborough Court Hotel9, the claimant made the contract for the use of a hotel room at the reception desk. A clause purporting to exclude liability for lost luggage was displayed in the room itself. It was held that this came too late to be incorporated into the contract. It was further stated that the position might have been different if the claimant had been a regular user of the hotel, and therefore as a result of a long and consistent ‘course of dealing’ could have had prior notice of the clause. It is important to address the common law approach to interpretation of exclusion clauses. As many of the cases above pre-date the statutory controls, the court’s decisions seem to adopt unnecessary complicated approaches to interpretation. The basic principle concerning interpretation is that the party seeking to rely on the clause must use clear words to exclude them from liability. A strict approach to construction is adopted by the courts. In Andrews v Singer10, a clause excluding liability in relation to implied terms was ruled ineffective to exclude liability for breach of an express term. In adopting this strict approach, the courts frequently employ the contra proferentem rule, which provides, if words of the exemption are ambiguous then the clause is to be interpreted in a way least favourable to the person seeking to rely upon the clause. This strict approach to interpretation is relaxed where the exclusion takes the form of a limitation clause. Under statutory control of exclusion clauses, exclusion of negligence under the UCTA 1977, gives an obligation to reasonable care in the execution of the contract. A party to a contract can not simply walk away from business liability as stipulated by Noffo Ltd. “Of any obligation, arising from the express or implied terms of a contract, to take reasonable care or exercise reasonable skill in the performance of the contract.”11 S.2(1) further states:” A person cannot by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict his liability for death or personal injury resulting from negligence.” Whereas s.2 is only concerned with the exclusion of negligence liability, s.3 covers all types of liability arising under a contract, including strict liability. It states: “This section applies as between contracting parties where one of them deals as a consumer, or on the other’s written standard terms of business.”12 The UCTA 1977 further raises the reasonable test to be applied to determine whether a clause meets the requirement of reasonableness. “….as fair and reasonable one to be included 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.”13 But what is the judicial approach to ‘reasonableness’ after the Unfair contract terms Act 1977? George Mitchell(Chesterhall) Ltd v Finney Lock Seeds Ltd14 seems to have the answer. This concerned a contract for the sale of cabbage seed which turned out not to match its description, with a result that the entire crop failed, and the purchaser suffered a loss of 63,000 pounds. The contract contained an exclusion clause, limiting the liability of the seller to the price of the seed, which was under 200 pounds. The clause was subject to the test of reasonableness which is now superseded by the UCTA 1977, contained in s55(4) of the Sale of goods Act 1979, which required the court to decide whether it was fair and reasonable to allow reliance on the clause. The trial judge and the court of Appeal held that the clause did not on its true construction cover the breach. In the House of Lords, Lord Bridge stated: “This evidence indicates a clear recognition by seedmen in general, and the [defendants] in particular, that reliance on the limitation of liability imposed by the relevant condition would not be fair and reasonable.”15 In Smith v Eric S Bush16, the case concerned a ‘disclaimer’ of liability for negligence put forward by a surveyor carrying out a valuation of a property for a building society, which was relied on by the purchaser of the property. Having decided that this disclaimer did constitute an exclusion clause, by virtue of s.13 of the UCTA 1977, the House then had to consider whether it satisfied the requirement of reasonableness. The fact that this was an individual private house purchase, not a deal in relation to commercial property, the House decided that the disclaimer of liability did not meet the requirement of reasonableness. In addition, the parties were not of equal bargaining power. Under the Unfair Terms in consumer contracts Regulations 1999, the Regulations apply where a term has not been the subject of individual negotiation, in contracts made between sellers or suppliers and consumers of goods of services. “A term shall always be regarded as not having been individually negotiated where it has been drafted in advance and the consumer has not been able to influence the substance of the term.”17 How does the courts assess unfairness? Good Faith is to be determined in accordance, particularly, with those matters specified in the recitals to the Directive, which may be consulted in interpreting the Regulations. The recitals provide that in making an assessment of good faith, regard shall be had, in particular, to, the strength of bargaining positions of the parties; whether the consumer had an inducement to agree to the term; whether the goods or services were sold or supplied to the special order of the consumer; and the extent to which the seller or supplier has dealt fairly and equitably with the consumer whose legitimate interests he has to take into account. As regards to the two exclusion clauses, Mark should be advised that the clauses were not clearly stipulated as required by the rule of notice. Why should such important clauses be hidden on a rubber stamp? Pure failure to bring to the attention of the consumer. Mark must be advised that even if Naffo was to rely on clause 1,under s.2(1), UCTA 1977, Naffo Ltd cannot succeed with clause 1 of the exclusion clause arising from Mark’s injuries. They(Naffo) had every reason to take every reasonable care to ensure safety during the performance of the contract. Mark should also be advised that Naffo Ltd may not succeed in relying on clause 2 of the exclusion clause as the clause itself is not made in good faith. Naffo Ltd seems to value the house that was damaged at 1000 pounds. The damage to the Mark’s house and the damage to the written off care was purely negligent on the part of Naffo Ltd. S.5(2), of the Unfair Terms in consumer contracts Regulations above does not permit such clauses imposed on consumers. The court may find it fit to rule that Mark must receive damages for his injuries and the full value of the damaged car. The hose may be valued at the extent of the damage and any un liquidated damages. Word Count:2,300 excluding Bibliography BIBLIOGRAPHY Maclntyre, E(2008),Business Law, 4th ed, Pearson publishing, London Keenan, D, & Riches, S(2008), Business Law, 8th ed, Pearson publishing,London Keenan, D, & Smith(2003), Business Law, 12th ed, Pearson publishing, London Keenan, D, & Smith(2006), Business Law,c 13th ed, Pearson publishing, London Abbot, K, Pendlebury, N, & Wardman, K(2002), Business Law, 7th ed, Continuum, London Smith & Thomas(2009), A case book on contract, 12th ed, Sweet ?& Maxwell, London MacKendrick, E(2005), contract Law, 2nd ed, OUP, Oxford Peel, E(2007),Treitel on the law of contract, 12th ed, Sweet & Maxwell, London Statutes Unfair Contract Terms Act 1977 Sale of Goods Act 1979 Unfair Terms in consumer contracts Regulations 1994 Unfair Terms in Consumer contracts Regulations 1999 Read More