Exclusion Clauses and the Unfair Contract Terms Act

Zero Plc is a large company specialising in the sale and supply of office equipment. Heather is the owner of a small estate agency company called Cellsoon Ltd. In the past, Heather has purchased a number of items of office equipment for her company from Zero Plc. Zero Plc regularly sends copies of its promotional literature to Cellsoon Ltd detailing the range of products which it offers and the different purchase options provided. Zero Plc provides five different purchase options which vary in price depending upon the amount of after-sales service provided and the extent of the liability accepted by the company.

The company's literature also states that "Full details of our terms and conditions can be obtained by written request to our Head Office". One day, Heather's office telephone switchboard broke down. Heather urgently needed a replacement and so telephoned Zero Plc. Heather orally agreed to purchase a suitable "low cost" office switchboard machine for Cellsoon Ltd with no after-sales service being provided by Zero Plc. A copy of the printed terms and conditions was subsequently delivered with the machine.

Heather noticed a clause in these terms and conditions which stated: "The liability of the company for loss or damage howsoever caused shall be limited to the sum of i?? 1,000. The benefit of this clause shall extend to the company's employees. " Three weeks after taking delivery of the machine, it burst into flames, badly burning Heather's arm. Considerable damage was also done to Cellsoon Ltd's offices such that the company lost several thousand pounds due to the consequent disruption of its business.

The fire was caused by a faulty electrical connection which was not discovered in advance due to a poor pre-delivery inspection carried out by Rodney, one of Zero Plc's employees. There are three stages, which the exclusion clause must pass for it to be binding on the parties, the first two stages are at common law, and the third stage considers applicable statutory provisions. Common Law requires us to determine if the clause is adequately incorporated into the contract, and if so further examination as to the construction of the clause.

Stage 1 – Incorporation. 1. By signing an agreement between the parties. 2. By Adequate Notice. 3. By Previous dealings. Signature – The courts are not minded to interfere with clauses, which have been freely agreed by the parties, a signature proves their intent to form an agreement. One authority for this is L'Estrange v F. Graucob, Limited1 this case would probably have a different outcome today, as it would be subjected to the statutory provisions of the (UCTA 1977)2 I shall consider the implications of this act in due course.

Notice – It is possible in the absence of signatures, that a notice alerting parties to the existence of a clause is sufficient. Thompson v London, Midland and Scottish Railway Company3 provides leading authority, insofar that a party seeking to rely on a clause must take reasonable steps to bring it to the attention of the other party, notice need not contain the clause itself, it is sufficient to alert the party to the existence of a clause and direct them elsewhere for the terms and conditions.

Timing is important; as the notice must be given before or at the time the contract is formed, notice provided after the contract formation is not valid as the parties have already made their agreement. Olley v Marlborough Court Limited4. Previous Dealings – Courts may decide to consider a clause is incorporated when the parties have had previous dealings. There must be a consistency in the clause type and adequate frequency. Mccutcheon v David Macbrayne Ltd5 is an example of how consistency of dealings was insufficient, as the clauses had not been provided on every occasion in the same format.

Consumer and business transactions require a larger number of previous dealings to persuade the courts to incorporate a clause. Hollier v Rambler Motors (A. M. C. ) Ltd,6 was a consumer case; previous dealing existed, but only on 3 or 4 occasions in 5 years, this was considered insufficient to demonstrate adequate frequency. In Petrotrade Inc v Texaco Ltd7, both businesses were of similar standing, and had 5 previous dealings over 13 months, this was held to be sufficiently frequent. When considering frequency, it is also necessary to look at equality of bargaining power.