The Problem of Standard Forms & Exclusion Clauses at Common Law

The Problem of Standard Forms

1 Standard Forms

printed documents containing terms;
purport to be the contract;
commercial party (the proffering party) puts them forward, and makes many such contracts;
presented to the other party (the adhering party) on a take-it-or-leave-it basis; and
signed or accepted by the adhering party.

Advantages

reduces proffering party’s transaction costs; reduces price for adhering party (?);
ensures control/ consistency of contracts;
enables proffering party to set advantageous terms by:

reducing its obligations;
increasing adhering party’s obligations;

increasing remedies for breach;

excluding or limiting claims.

3 Inequality of Bargaining Power

Schroeder v Macaulay [1974] 1 WLR 1308 (‘a classic instance of superior bargaining power’)

Suisse Atlantique Societe d’Armement Maritime SA v NV Rotterdamsche Kolen Centrale (1967) 1 AC 361

‘In the ordinary way the customer has no time to read them, and if he did read them he would probably not understand them. And if he did understand and object to any of them, he would generally be told he could take-it-or-leave-it. And if he then went to another supplier the result would be the same. Freedom of contract must surely imply some choice or room for bargaining. At the other extreme is the case where the parties are bargaining on terms of equality and a stringent exemption clause is accepted for a quid pro quo or other good reason’.

4 Disadvantages

lack of knowledge, caused by small print, social pressure, etc.
weak bargaining power causes lack of negotiability
substantive unfairness

Exclusion Clauses at Common Law

1 Introduction

‘Exemption’ clauses: exclude or limit proffering party’s liability for breach.

1.1 Advantages

promote freedom of contract
enhance risk allocation
reduce litigation costs

1.2 Disadvantages

cause ‘unfair surprise’, defeat reasonable expectations

1.3 Judicial Control

invalid for lack of incorporation, insufficient notice of onerous term or exemption clause in an unsigned document;
special rules of interpretation to narrow their scope, ie, not wide enough to cover event; or
term invalid by common law or statutory rule.

2 Signed Documents

Parker v SE Railway Co (1876-77) LR 2 CPD 416

L’Estrange v F Graucob Ltd [1934] 2 KB 394 (exemption clause valid because signature, despite being printed on brown paper, in ‘regrettably small print’, and in an unexpected place).

Unsigned Documents – Unenforceable for Lack of Incorporation

3.1 Timing of Notice

Olley v Marlborough Court Ltd [1949] 1 KB 532

Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163

3.2 Contractual Document?

Chapelton v Barry DC [1940] 1 KB 532 (‘mere receipt’)

3.3 Reasonable Notice

Parker v SE Railway Co (1876-77) LR 2 CPD 416

‘The railway company… must be entitled to make some assumptions respecting the person who deposits luggage with them: I think they are entitled to assume he can read, and that he understands the English language, and that he pays such attention to what he is about as may be reasonably expected from a person in such a transaction… [if the railway’s company’s action] was sufficient to inform people in general that the ticket contains conditions, I think that a particular plaintiff ought not to be in a better position than other persons on account of his exceptional ignorance or stupidity or carelessness’.

Thompson v LM & S Railway Co [1930] 1 KB 41

Henderson v Stevenson (1870-75) LR 2 Sc 470 (ticket made no reference to the existence of conditions on the back)

Richardson, Spence & Co Ltd v Rowntree [1894] AC 217 (ticket folded over and conditions partially obscured by red ink stamp)

J Spurling Ltd v Bradshaw [1956] 1 WLR 461 (‘the more unreasonable a clause is, the greater the notice which must be given of it’)

Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163

Exclusion clause was ‘so wide and so destructive of rights that the court should not hold any man bound by it unless it is drawn to his attention in the most explicit way… In order to give sufficient notice, it would need to be printed in red ink with a red hand pointing to it – or something equally startling’.

4 Rules of Interpretation

George Mitchell Ltd v Finney Lock Seeds Ltd [1983] QB 284

‘Faced with this abuse of power – by the strong against the weak – by the use of the small print of the conditions – the judges did what they could to put a curb upon it. They still had before them the idol, ‘freedom of contract’. They still knelt down and worshipped it, but they concealed under their cloaks a secret weapon. They used it to stab the idol in the back. This weapon was called ‘the true construction of the contract’. They used it with great skill and ingenuity. They used it so as to depart from the natural meaning of the words of the exemption clause and to put upon them a strained and unnatural construction. In case after case, they said that the words were not strong enough to give the big concern exemption from liability; or that in the circumstances the big concern was not entitled to rely on the exemption clause… In short, whenever the wide words – in their natural meaning – would give rise to an unreasonable result, the judges either rejected them as repugnant to the main purpose of the contract, or else cut them down to size in order to produce a reasonable result’.

4.1 Fundamental Breach

Karsales (Harrow) Ltd v Wallis (1956) WLR 936 (rule of law)

Suisse Atlantique Societe d’ Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 (rule of construction)

Photo Production v Securicor Transport [1980] 1 All ER 556

Exclusion clause stated that ‘under no circumstances’ were S to ‘be responsible for any injurious act or default by any employee… unless [this]… could have been foreseen and avoided by the exercise of due diligence’. HL upheld clause.

4.2 Contra Proferentem

Now has legislative recognition: UTCCR (reg 7(2))

Andrews Bros (Bournemouth) Ltd v Singer and Co Ltd [1934] 1 KB 17

Chanter v Hopkins (1838) 4 M&W 399 (‘peas not beans’ rule)

George Mitchell Ltd v Finney Lock Seeds Ltd [1983] QB 284

4.3 The Limitation-Exclusion Distinction

Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 WLR 964; George Mitchell

4.4 Exemptions of Negligence Liability

EE Caledonia v Orbit Valve Co Europe plc [1994] 1 WLR 1515

Canada Steamship Lines Ltd v The King [1952] AC 192

Express Exemption

Shell Chemicals UK Ltd v P&O Roadtanks Ltd [1995] 1 Lloyd’s Rep 297 (clause exempting liability for ‘loss whatsoever or howsoever occasioned’, not sufficiently express)

No Express Exemption

Ailsa Craig Fishing Co Ltd, George Mitchell

White v Blackmore [1972] 3 All ER 158 (‘will not be liable for any accident howsoever caused’, sufficiently wide to exclude negligence liability)

L Harris (Harella) Ltd v Continental Express Ltd & Burn Transit Ltd [1961] 1 Lloyd’s Rep 251 (‘shall not be liable under any circumstances whatsoever for theft’, sufficiently wide)

4.4.3 Cover Liability other than Negligence?

Alderslade v Hendon Laundry Ltd [1945] KB 189

Canada Steamship Lines Ltd v The King [1952] AC 192; White v John Warwick & Co Ltd [1953] 1 WLR 1285 (clause also covered strict liability for breach of contract, ineffective for negligence liability)

EE Caledonia v Orbit Valve Co Europe plc [1994] 1 WLR 1515 (clause also covered breach of statutory duty, so ineffective provided non-negligence liability not ‘fanciful or remote’)

Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71

4.5 Exemptions for ‘Indirect and Consequential Loss’

Hotel Services Ltd v Hilton International Hotels (UK) Ltd [2000] BLR 235