Contract Law 2040 Coursework Problem Question First-Class Answer (Awarded an 80)

Submitted by: Jamie Stewart


1. Evade and Dodge, an accountancy firm in Bangor, sold a second hand office printer and photocopier to the Lamplighters, a voluntary body that goes round old people’s homes, churches, and small cultural societies providing entertainment in the form of singing and poetry recital. The price was £500 and the machine was three years old at the time of sale. Evade and Dodge drew up a contract of sale which contained a very wide exclusion clause effectively exempting them from any liability for defects in the printer and photocopier. David signed the contract on behalf of the Lamplighters without reading any of its terms and Evade and Dodge did not draw his attention to the exemption clause. David had seen the printer and photocopier working and there did not seem to be any problem with it. However after one week’s use the machine breaks down completely and becomes completely unusable ever again. Advise the Lamplighters whether they would have any right of redress against Evade and Dodge.

Absent of the exclusion clause, Lamplighters would be entitled to sue for a breach of contract under Section 14(2) of the Sales of Goods Act 1979. It states that where a seller sells good in the course of business, there is an implied condition that the goods under the contract are of satisfactory quality. Exclusion clauses are defined as unfair terms (Karsales (Harrow) Ltd v Wallies [1952]) and the court use common law and statute law to deal with unfair terms. For liability to be excluded at common law it must be shown that the exclusion clause is properly incorporated into the contract and that properly interpreted, the exclusion clause covers the loss which has arisen. At statute law it must be shown that no statute invalidates the exclusion clause. If any of these conditions are not satisfied, liability will not be excluded, and Lamplighters will be entitled to a right of redress for the breach of contract.


Incorporation

If the exclusion clause has not been incorporated into the contract it will not be enforceable. An exclusion cause can be incorporated into the contract by signature, notice or course of dealings. In this case signature is the relevant incorporation technique. The general rule is that a person is bound by their signature (L’Estrange v Graucob [1934]) and the fact they did not read any of the terms doesn’t matter (Grogan v Robin Meredith Plant Hire [1996]). There has been Commonwealth Authority which suggest an attack on L’Estrange (Tilden Rent-acar Co v Clendenning [1978]). However, it is unlikely that Northern Ireland would follow Clendenning because of a resurgence in support for the rule in L’estrange (Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004]). Additionally, Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] established that were the clause is particularly onerous the party seeking to rely on the clause must show that they have taken reasonable steps to bring the clause to the other party’s attention. Whilst Evade and Dodge did not bring the clause to David’s attention, the clause isn’t particularly onerous. Therefore, it can be said that the exclusion clause has been incorporated into the contract.


Interpretation

It must be determined what the exclusion clause means and if it does not cover the situation at hand it does not apply. The contra proferentum principle applies here which means that any ambiguity in the exclusion clause is resolved against the party seeking to rely on it (Andrews Bros (Bournemouth) Ltd v Singer & Co Ltd [1934]). Although we aren’t told the exact wording of the clause it’s quite evident that a clause excluding liability from any defects in the printer or photocopier would apply when the machine has broken down completely. In any case, it can be said that the construction of the clause is broad enough to encompass a breach of condition so the court will likely find liability to be excluded. (Air Transworld Ltd v Bombardier Inc [2012]).

Therefore, overall, under Common law Lamplighters will have no right of redress as the court will likely find that the exclusion clause has been properly incorporated into the contracted and can be interpreted to apply here.


Statutory Controls to Exclusion Clauses

There is still a possibility of Lamplighters finding a right of redress in Statute law with two acts being of potential relevance, the Consumers Rights Act 2015 (CRA) and the Unfair Contract Terms Act 1977 (UCTA).


Part 2 of the CRA regulates unfair terms in consumer contracts. Section 62(1) highlights that ‘an unfair term of a consumer contract is not binding on a consumer.’ Schedule 2 of the act provides that exclusion clauses are considered unfair terms under the act so if it can be shown that the contract is between a trader and consumer as defined in Section 2 the act will apply. However, Lamplighters are not a consumer. A consumer is defined as an ‘individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession.’ The consumer must be an individual therefore Lamplighters cannot be considered a consumer. Furthermore, they are not acting outside their profession with the printer being used for their voluntary work. Consequently, the CRA does not apply in this situation.


However, the UCTA also regulates exclusion clauses and if a case falls within the scope of the UCTA it will be subject to the reasonableness test. If not, then liability will likely be excluded as there is no general doctrine of unfairness or unreasonableness which they can rely on. This situation is covered by section 6 (1A) which prevents liability being excluded for a breach of contract in relation to the goods ‘quality or fitness for a particular purpose’ so far as the term satisfies the requirement of reasonableness. Consequently, if it can’t be shown that the exclusion clause was reasonable, Lamplighters will be able to bring action against Evade and Dodge for a breach of contract.


Reasonableness

The test for reasonableness is laid out in section 11(1) of the UCTA stating that the ‘term shall have been a 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.’ It should be noted that reasonableness is to be assessed on the date of making the contract and not the date of breach. Also, the onus is the party relying on the exclusion clause to show that it is reasonable (s 11(5)). Where contracts fall within the scope of Section 6, the court is directed to take into account the factors listed in Schedule 2 of the UCTA. Before going into the relevant factors to be considered under Schedule 2, it should be noted the court don’t look favourably upon widely drafted clauses (Lease Management Services Ltd v Purnell Secretarial Services Ltd [1994]). Although we don’t know the clauses exact wording, it is a very wide exclusion clause exempting all liability for defects in the printer and photocopier. Consequently, the court will be less inclined to find the clause reasonable but the relevant Schedule 2 factors must still be considered.


Firstly, the knowledge of the party challenging the clause will be considered with the court more likely to find reasonableness when they had knowledge of the clause. David did not read the terms of the contract and Evade and Dodge failed to bring the exclusion clause to his attention so the court will be more inclined to find the clause unreasonable. Secondly, the greater the equality of bargaining power, the more likely it is that the clause will be viewed as reasonable. Chadwick LJ highlighted the importance of this point in Watford Electronics Ltd v Sanderson CFL Ltd [2001]. He stated that ‘when experienced businessmen representing substantial companies of equal bargaining power negotiate an agreement… they should… be taken to be the best judge on the question whether the terms of the agreement are reasonable.’ He also highlighted that the courts should interfere where one party has been taken ‘unfair advantage’ of.


Whilst Evade and Dodge, an accountancy firm, would have significant business knowledge, it is unlikely that David is an experienced businessman and he isn’t representing a substantial company. He’s signing on behalf of a small voluntary body who is simply seeking a working a printer for lyrics to songs and poetry. Despite this, it cannot be said with certainty that there is inequality of bargaining power as there isn’t enough evidence from the information given to suggest that Evade and Dodge took unfair advantage of Lamplighters. However, the court will definitely consider it and well find inequality of bargaining power.


Overall, it is likely that the courts will conclude that the exclusion clause is unreasonable. The fact that the clause is very broad will instantly make the courts hesitant to find reasonableness. Moreover, Lamplighters lack of knowledge of the clause and the possibility of inequality of bargaining power will compel the court to find the clause to be unreasonable. Therefore, Lamplighters will be entitled to a right of redress as Evade and Dodge will not be excluded of liability for their breach of contract.


Right of Redress

A breach of contract does not automatically bring the contract to an end (Decro-Wall International Sa v Practitioners in Marketing Ltd [1971]) so Lamplighters should terminate the contract. They’re entitled to damages for any loss caused but since they’re a voluntary body the only loss caused will be the £500 for the printer and photocopier. Therefore, restitution would be a suitable compromise remedy to allow Lamplighters to get their money back and source another printer.


Conclusion

Overall, Lamplighters will be entitled to a right of redress for Evade and Dodge’s breach of contract under the 1979 Act. Although Evade and Dodge were excluded from liability under common law, Section 6(1) of the UCTA regulates this type of clause which was found to be unreasonable with restitution being the remedy that Lamplighters should pursue.