In the present case, Capability Ltd has given a document which was titled as ‘Memorandum of Terms’ and at the back of this document; two clauses have been inserted by a rubber stamp. Therefore the first clause states that the company is not responsible for any personal injury that may be suffered by the customer by performing the contract. In the same way, according to the second clause, the liability of the company for any damage that may be suffered by the home of the customer is limited to the sum of 500 pounds and at the same time it also mentions that the company does not accept any liability for damage or loss suffered by the goods of the consumer. However, while performing the contract, an employee of Capability Ltd., Reckless drives a truck through a wall of the house of Harvey. When Harvey comes home later that night, his car collides with the track that has been parked in the middle of the driveway by Reckless with no lights on. As a result, Harvey is injured and his car is also damaged completely. Under these circumstances, it needs to be decided that in view of the clauses present at the back of the "Memorandum of Terms" can Harvey claim damages for injury and loss suffered by him as a result of the carelessness of an employee of the company or if Capability Ltd. can use the exclusion clauses inserted by it, to evade its responsibility for the injury and loss suffered by Harvey.
Limitation clauses are used to allocate risk but in order to be enforceable, they need to be drafted carefully. Generally in order to divide risk, parties restrict or exclude their liability towards each other in case of a default. Such exclusion of liability can take place in several types (Pegler v Wang (UK) Limited, 2000). While the purpose of some clauses is to exclude the liability of a party completely, there are other causes that place a restriction on the liability of such a party, generally by putting a cap on the amount that has to be paid by such party in case of damages caused by a breach of contract or by confining the kinds of loss that may be recovered by the other party or the available remedies. Similarly, the liability of a party can also be limited by prescribing lesser time limit for establishing a claim (Gillespie Bros & Co Ltd v Roy Bowles (Transport) Limited, 1973).
Therefore, unless the limitation or exclusion clause has been inserted in the contract, such a clause cannot be enforced (Mitsubishi Corporation v Eastwind Transport Limited and Others, 2004). Therefore the more uncommon is the limitation clause, more prominent states to be given (Thomas Witter Ltd v TBP Industries Limited, 1996).
In the same way, and exclusion clause should not be too wide, particularly if such clause defeats the overall purpose. Therefore, the chances are more, that a narrower but more accurate clause will be up held by the court. In the same way if words used in the clause are not clear and unambiguous, it can be construed by the court as "contra proferentem". The meaning is that the clause will be interpreted strictly by the court and any ambiguity in the clause will be constituted against such party that is relying on the clause (St Albans City and District Council v International Computers Ltd, 1996). Even in cases where the contract is not affected by the relevant legislation (The Unfair Contract Terms Act, 1977), the common law approach towards the construction of such a clause is not always literalist and such a clause is not provided literal interpretation if the result confronts the main object of the contract.
The UCTA is applicable to commercial and consumer circumstances also and in such cases, it is the most important statutory control. This legislation controls the exclusion of liability in case of any job express as well as the implied obligations under the contract and also the duty of care provided by common law. This legislation also regulates the terms in accordance with liability that it tries to exclude. At the same time, the Unfair Terms in Consumer Contracts Regulations (UCTA), 1999 applies to the business to consumer contracts only. These regulations deal with the terms present between the supplier and the consumer when such terms have not been individually negotiated. Therefore if a term results in a substantial imbalance in the respective positions of the parties, and which is contrary to good faith, will be considered unfair. If, according to the Regulations, a term can be considered as unfair, such a term is not binding and such term can be treated as not a part of the contract by the consumer. However the rest of the contract is valid if the contract is capable of doing so on the basis of the general principles related with severability (Stewart Gill Limited v Horatio Meyer & Company Limited, 1992).
According to the UCTA, a company cannot restrict or exclude its liability in case of death or injury that has been caused by negligence. However, in case of other loss that has been caused by negligence, the company can restrict its liability, but only to the level to which the term of the notice satisfies the test of reasonableness provided by the Unfair Contract Terms Act. This rule is applicable in all circumstances, irrespective of the fact whether the term is present in a contract or it is present in a non-contractual notice.
Reasonableness is a basic requirement for the operation of the Act. Therefore a term of contract is reasonable if it is “fair and reasonable to include such term in the contract, keeping in mind the circumstances reasonably known to the parties at the time of the creation of the contract". There are five guidelines that can be used to interpret "reasonableness". In brief, these are the relative strength of the bargaining positions; whether the consumer has received any incentive for aware accepting the term; regardless of the fact that the consumer was aware or should have known that such a term has been included in the contract; if the exclusion clause in case a condition has not been complied with, the chances of compliance with such a condition when the contract was formed and it also needs to be seen if the goods or services were a unusual order (Stag Line Ltd v Tyne Ship Repair Group, 1984).
At the same time, although it has been mentioned that these guidelines are applicable in case of sale of goods and services, these guidelines can also be considered by courts as having more broad application. The UCTA does not make any distinction between business and consumer contracts, however the approach adopted by the courts in this regard reveals that it is more problematic to prove that a clause is reasonable as against the consumer (Cover Version Ltd v DHL Logistics (UK) Ltd, 2007). In case of business contracts, particularly in the context when parties have the same bargaining power and are also able to protect against the risks that are contemplated by such a clause, generally the courts do not intervene and therefore they allow the parties to allocate the risk in any way they want to. On the other hand, in case of a clause that tries to deprive a consumer of a realistic remedy for a serious breach of the contract, faces the risk of being considered as unreasonable. Under the common law, there are additional principles present that are related with "reasonableness". In the same way, it has been stated by the courts that the use of small print or unnecessarily convoluted drafting may also be considered as unreasonable (Ailsa Craig Fishing Co. Ltd v Malvern Fishing Co. Ltd, 1983).
The result of these provisions is that in case and exclusion clause contravenes the UCTA, whether due to the reason that such clause tries to exclude a particular liability, that cannot be excluded or if such law is unreasonable, the clause shall have no effect. In such cases, the court is required to consider the term as a whole. Similarly, the clause cannot be rewritten by the court with a view to substitute an acceptable alternative. Therefore, it can be set in other words that the liability will be totally uncapped and it will be subject only to the general rules related with remoteness and causation. However, on the other hand, there are no sanctions like fines that can be imposed if a party has used an invalid clause in a contract. The problem that is related with the clause which is partly valid and partially invalid under the UCTA is complicated problem.
As a result of the above-mentioned discussion, the advice that can be given to Harvey in the present case is that although two clauses have been inserted into the 'Memorandum of Terms' by Capability Ltd., such a term has been included on the back of the paper and that too with a rubberstamp. However, the above-mentioned discussion makes it clear that in order to be enforceable, an exclusion clause has to be incorporated in the contract and brought to the notice of the other party. In the present case, the exclusion clauses were not pointed out to Harvey at the time of the creation of the contract. Therefore, in the present case it cannot be said that these terms are part of the contract and therefore Capability Ltd. can be absolved of its liability regarding the injury and loss suffered by Harvey as a result of the negligence of an employee of the company, Reckless. The result is that Harvey can claim compensation for the injuries suffered by him and also for the loss and damage caused to his house as well as to his car.
Problem 2
In the present case, Gayle has entered into a contract with Exprop to erect for a division stand at the World Industrial Technology Exhibition in London so that she can demonstrate the capabilities of her robots. At the same time, a London-based magazine named Tech Weekly has also agreed to advertise the presence of her stall in the exhibition for no charge. In the same way, Gayle has agreed to pay €1000 to Securefest if an employee of the company can keep a watch on her stand in the exhibition. However after the exhibition is over, Gayle refuses to pay to Securefest. In the same way, she had also promised to pay 2000 extra to Exprop if the company can add a "wow factor" to her stall. She also refuses to pay this amount. In the same way, due to the financial difficulties being faced by Tech Weekly, Gayle promises to pay €3000 to the magazine for advertising the stall of her company in the exhibition. However, later on Gayle refuses to make this payment as the balance of her company in the bank is too low. Therefore in the present case, the legal position of all the parties involved needs to be discussed.
The legal duty rule is the exception to the bargain principle of consideration. Therefore the legal duty rule governs the promises related with the performance of acts that the promisor already legally required to perform. In this regard, it needs to be noted that there are two types of pre-existing legal duties (Stilk v Myrick, 1809). These legal duties are public duties and contractual duties. In case of public duties, the legal duty rule provides that neither the promise made by an official to perform an act that is already within the scope of the official duties not the actual performance of such a promise is considered as a valid consideration. It also needs to be noted in this regard that the legal duty rule also applies to a promise made by an official if the action is within the scope of the official duties although the performance of that particular act is not required legally. On the other hand, there are the contractual duties (Collins v Godefrey, 1831). In case of contractual duties, the general rule that applies provides that a promise to perform a pre-existing contractual duty or the actual performance of such a duty, does not provide consideration for a new promise. The legal duty rule can be found in two different types of cases involving pre-existing contractual duty. Therefore, the first type of cases are the ones in which a party has a contractual duty to perform and the other party has made a promise to pay more money for performing the same duty. Therefore the general rule provides in this regard that where a pre-existing contract is present, the promised to pay more money for performance of the same duty cannot be enforced. There are however certain exceptions to the general rule. The first exception provides that in case the promise to pay more money is matched with a promise for different performance, such promise can be enforced. In such cases, only a relatively small difference is required between the performance under the first contract and the performance under the modification to be considered as enough for providing the consideration. The second exception is applicable where one party owes a pre-existing duty under the contract to another party but a third party has made a promise on the basis of such a duty. Therefore if the pre-existing duty is over towards someone else, the legal duty rule is not applicable. According to the third exception, in case a promisor has a valid defense for not fulfilling the original contract, the exception is applicable. In such a case, the promisor is not legally required to render the performance under the first contract at all. As a result, the promise made under the new contract can be enforced due to reason that it is a promise under the new contract and as a result it is not a promise for performing a pre-existing legal duty. According to the fourth exception, the legal duty rule is not applicable where a "fair and equitable modification is present in light of unanticipated circumstances". Therefore it has been held by some courts that the legal duty rule is not applicable in case of a modification of the ongoing contract if such modification is required by unanticipated circumstances and it is fair to do so under the circumstances (Glasbrook Ltd v Glamorgan County Council, 1925).
In the present case, Gayle has entered into a contract with Exprop to erect her stall at the exhibition. However, Gayle also promises to pay 2000 extra in order to make sure that her stand at the division has that 'wow factor'. But on the basis of the facts of this case, it can be said that Exprop was already under a duty to erect the exhibition stand of Gayle. Therefore, the promise to pay extra money has been made for a pre-existing duty and as a result, it can be said that in this case there is no contract. Therefore, Exprop cannot enforce this promise against Gayle.
On the other hand, Gayle had made a promise to pay €1000 to Securefest if the employees of the company can keep a watch on her 'stand'. In this case also, Securefest has been employed by the World Industrial Technology Exhibition to provide security. Therefore in this case also, it is the legal duty of Securefest to provide security to all the stands at the exhibition. Nothing extra is being done by the employees of Securefest. As a result in this case also, there is no consideration for the promise made by Gayle. As a result, this promise also cannot be enforced by Securefest.
In the same way, the magazine Tech Weekly had agreed to advertise the stand of Gayle at the exhibition free of cost. However later on, Gayle comes to know that the magazine is facing problems from its creditors. As a result, Gayle makes a promise to pay 3000 the magazine for advertising her stand. But later on, Gayle comes to know that her balance in the bank is alarmingly low, therefore, she refuses to make the payment. In this case also, Tech Weekly had already agreed to advertise the stand of Gayle at the exhibition free of cost. Therefore, in view of the promise made by Gayle to pay 3000, no other act is being performed by the magazine. As a result in this case also, the promise made by Gayle cannot be enforced as it is not supported by consideration and therefore it is not enforceable.
Ailsa Craig Fishing Co. Ltd v Malvern Fishing Co. Ltd [1983] 1 WLR 964
Collins v Godefrey (1831) 1B & Ad 951
Cover Version Ltd v DHL Logistics (UK) Ltd [2007] EWHC 562
Gillespie Bros & Co Ltd -v- Roy Bowles (Transport) Limited [1973] 1 QB 400
Glasbrook Ltd v Glamorgan County Council [1925] AC 270
Mitsubishi Corporation v Eastwind Transport Limited and Others [2004] EWHC 2924
Pegler -v- Wang (UK) Limited (2000) BLR 218
St Albans City and District Council v International Computers Ltd [1996] 4 All ER 481
Stag Line Ltd v Tyne Ship Repair Group [1984] 2 Lloyd's Rep 211
Stewart Gill Limited v Horatio Meyer & Company Limited [1992] 1 QB 600
Stilk v Myrick (1809) 2 Camp 317
Thomas Witter Ltd v TBP Industries Limited [1996] 2 All ER 573
