An exemption clause is a specific kind of clause employed in a contract to exclude or limit the liability for breach of contract.
The clause may be employed to rely on, if it has been incorporated into the contract and, with reference to the interpretation, if it is extended to the breach in question; if both the previous matters are corroborated, the clause validity is tested under the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulation 1999.
In our specific scenario the following clause is mentioned: “Electric Motors Ltd limits its liability for any breach of the terms implied by ss. 13-14 of the Sale of Goods Act 1979 to £500.”
Ethical Co and Electric Motors Ltd have already made in the past other deals but, in this particular purchase, the former ascertains a serious defect in the car bought, which would have severely cost to the company.
To proceed in order, firstly incorporation should be considered; the party wishing to rely on the exclusion clause must demonstrate that it is a term of the contract.
Problems in this regards arise normally because often there isn't a proper knowledge of all terms; it often happens that a contract is signed without a real cognition of its content.
Considering the specific kind of clauses here debated, they can be incorporated by signature, by notice or by a course of dealing.
To be incorporated, terms must be introduced before a contract is made and the leading case on this matter is Olley ; moreover, generally, terms on an unsigned document are incorporated if there is a sufficient notice, in Parker arises this specific issue: the term is valid if there has been reasonably sufficient notice of it.
In the Ethical Co case, there's no signature for the particular purchase considered; in fact, it was agreed over the telephone. The signature acts, incorporates the contract, whether there is knowledge of the clause or not; this is the case of L’Estrange where the court decreed the irrelevance of the plaintiff's total lack of awareness of the contract terms, the signature was sufficient to make the exemption clause legitimate.
However, in case of misrepresentation, as in Curtis , a document can be rendered completely or partially ineffective.
In regards to incorporation by a course of dealing, an exclusion clause may be incorporated basing it upon previous dealings between the parties, on the same terms.
Another issue to consider in the course of dealing context, is whether, after a period of transactions between the parties, the incorporation of the standard terms into an oral contract, ergo without a signature, makes the clause able to cover the potential breach; the leading case is Hollier v Rambler Motors (AMC) Ltd (1972) whose ruling is that it may be required a considerable number of past transactions if one of the parties is a private consumer. Specifically, an important problem emerging with Hollier is the difference of treatment if the...