Law

In a typical case an exemption clause can be validly included in a contract provided reasonable steps are taken to ensure that it is brought to the attention of the party against whom it is applied.  Such a position is quite different from the previous approach which required that the exclusion clause be brought to the other partys attention in the most explicit way.  This turn around by the ruling in the Regus (UK) Ltd. v Epcot Solution Ltd 2008 which only requires that reasonable steps be taken to bring the exclusion clause to the other partys attention seems to suggest that a lower standard will suffice.  This paper will examine the law with respect to the validity and application of exclusion clauses and will argue that while Regus has lowered the standard, it is not entirely true that it may now be possible for all exclusion clauses to be rendered valid, although it may now be possible for more exclusion clauses to be held valid.  Ultimately, the standard of reasonableness as exemplified in the Regus case is essentially not really a departure from the previously established standard for upholding or denying exclusion from liability clauses in commercial contracts.

Exclusion Clauses
An exclusion clause is a clause that is included in a contract for the purpose of limiting, if not excluding liability for negligence in the performance of obligations or failing to carry out obligations under a contract.  The actual clause may be included into the contract in variety of ways.  For instance it may be prominently displayed in business places so that parties intending to engage in a commercial contract will have prior notice of the implications should they incur losses and damages pursuant to the contract.

The Law Regulating the Validity of Exclusion Clause Prior to Regus (UK) Ltd. v Epcot Solution Ltd 2008
The courts have generally taken the position that exclusion clause are not automatically valid. If an exclusion clause is not signed by the party against whom it is intended to apply it will be no real significance unless reasonable steps are taken to bring it to the other partys attention.  If an exclusion clause is incorporated into a written contract, if the contract is signed by all of the contracting parties, it will usually form a part of the terms and conditions of a contract. Ultimately, whether or not an exclusion clause is signed or not will not be the determining factor with respect to its binding effect.

Whether or not an exclusion clause is binding will generally depend on whether or not  reasonable steps were taken to ensure that the party against whom it is intended to be used, was aware of it prior to entering into a binding contract. Obviously, it is reasonable to assume that once an exclusion clause is incorporated into a contract and that contract is signed by each of the parties that the party against whom the exclusion clause is intended had reasonable notice of the existence of the clause.  It is a general rule of commercial contracts that once the exclusion clause is contained in  a contract signed by each of the parties, the parties are bound by all terms in the contract which invariable includes exclusion clause and it is of no consequence whether  the contract was read or not.

In essence, an exclusion clause is required to be effectively incorporated into the contract.   If this basic requirement fails the clause will have no real consequences for the commercial contract regardless of how much trouble goes into drafting the clause.  In a typical case the exemption from liability is displayed on the premises where the contract is made.  The exclusion may also be displayed on a document exchanged betweent he parties or referred to in a document.  A typical case is that of a ticket or a receipt.

The case of Thornton v Shoe Lane Parking Ltd. (1971) 1 All ER 686 provides a leading authority for the exceptions to the effectiveness and validity of an exclusion clause.  In this case the plaintiff entered  the defendants parking lot where signs were displayed warning that persons who use the car park would be doing so at their own risk.  A ticket was issued upon entering the car park from an automatic dispenser and the plaintiff  therefore received his ticket upon entering the parking garage.

An exclusion from liability clause appeared on the reverse side of the ticket stating that the defendant would not be liable for any injuries incurred as a result of  using the car park.  The plaintiff however, incurred injuries and initiated legal action to recover damages for those injuries.  The defendant attempted to rely on the validity and application of the exclusion from liability clause that appeared on the reverse side of the ticket.

Lord Denning stressed that such an exclusion clause is required to be brought to the plaintiffs attention.  To this end, Lord Denning stated with respect to  exclusion clauses

All I say is that it is 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 a latter case, White v Blackmore 1972 3 All ER 158, Lord Denning also noted that the court is required to be satisfied that any document that is relied on to prove the existence of the exclusion clause is an integral part of the contract.  Ultimately, this means that the documents displaying an exclusion from liability must be intended to be a part of the actual contract and not merely evidence of a receipt which is typically regarded as no more than a confirmation of the existence of a contract.

The difference was exemplified by Melish L.J. in Parker v South Eastern Railway 1977 2 C.P.D. 416 as follows

There may be cases in which a paper containing writing is delivered by one party to another in the course of a business transaction, where it would be quite reasonable that the party receiving it should assume that the writing contained in it no condition, and should put it in his pocket unread.  For instance, if a person driving through a turnpike gate received a ticket upon paying the toll, he might reasonably assume that the object of the ticket was that by producing it he might be free from paying toll at some other turnpike gate, and might put it in his pocket unread.

This line of reasoning was followed in the case of Chapelton v Barry UDC (1940) 1 KB 532 which explains how exceptions in terms of the effectiveness and application of an exclusion clause on a ticket or receipt apply.  The plaintiff who was on a beach resort notices some chairs which contained a notice reading that, hire of chares 2d per session of 3 hours  Public requested to obtain ticker from attendant.The plaintiff proceeded to avail himself of a chair and the attendant ticket which contained a notice that read the council will not be liable for any accident or damage arising from hire of the chair. On appeal it was ruled that the exclusion from liability clause was not on the actual notice to obtain a ticket, which could not have been obtained at the same time the chair was rented and could therefore not operate to alter the terms of the contract.  Essentially the question was one of reasonable notice prior to becoming bound by the terms and conditions of the contract.

The courts will also look to the particulars of the specific case and will take into account whether or not the exclusion from liability forms a part of the typical course of dealings between the parties.  Ultimately the court seeks to assess whether or not the exclusion clause is fair iin the circumstances of the case before it.  For example  Lord Dunedin maintained in the case of  Hood v. Anchor Line Ltd. (1918  that
Accordingly it is in each case a question of circumstance whether the sort of restriction that is expressed in any writing (which, of course, includes printed matter) is a thing that is usual, and whether, being usual, it has been fairly brought before the notice of the accepting party.

It therefore follows that the court can come to the conclusion that in  a particular case a consumer has adequate notice of an exclusion clause as a result of the fact that heshe is a regular patron of the business in question.

However the ruling in Baldry v Marshall (1925) 1 KB 260 places another restriction on the application and validity of the exclusion clause.  In this case the court cautioned that the exclusion clause is required to be clear and precise and it will be very strict in this regard, particularly in cases where such a clause seeks to restrict or exclude damages in respect of personal injuries.

Moreover, Section 2(1)  the Unfair Contract Terms Act 1977 will operate to impose liability for personal injuries regardless of an exemption from liability clause.  By virtue of Section 2(1) of the 1977 it is not possible to exclude liability for damages resulting from personal injuries as a result of negligence in performing obligations uner a contract.   Under S2(1) no one acting in the course of a business can exclude or restrict liability in negligence for death or personal injury by virtue of a term in a contract or by way of notice.  Section 2(2) of the Unfair Contract Terms Act 1977 makes provision for enforcement of exemption clauses in respect of other types of damages including loss of property.

Section 4 of the 1977 Act also provides that an exclusion clause is not generally enforceable when one of the parties to the contract is a consumer, unless the clause is reasonable.  This section is founded on principles of inequality of bargaining position.The good faith doctrine is primarily reliant upon the strength of the respective bargaining position of the parties and determines whether or not it is fair and reasonable in the circumstances to validate the exclusion clause.

In general the law has developed to such an extent that it is fair to conclude that in order for an exclusion from liability clause to bind the parties, the party against whom the clause is intended to be use should have the benefit of sufficient notice of the clause either before or simultaneous to entering  into the contract. Whether the exclusion is read or not is of no real consequence. The courts have also demonstrated a tendency to rely on what can be characterized as the main purpose rule. Under the scope and range of the  main purpose rule, in circumstances where the exclusion clause is inconsistent with the contracts main purpose, the exclusion clause can be refused on the grounds that it undermines the uselessness of  the contracts purpose.  The House of Lords essentially took this approach in  the case of Suisse Atlantique Societe dArmement Maritime SA v NV Rotterdamsche Kolen Centrale 1967 1 AC 361.

As a result of the House of Lords approach to  the main purpose rule in the Suisse Atlantique case Section 3 of the Unfair Contract Terms Act 1977 was implemented.  Section 3 provides that in cases where one of the contracting parties is a consumer or the other party attempts to rely on standard business terms
As against that party, the other cannot by reference to any contract term
When himself in breach of contract, exclude or restrict any liability or his in respect of the breach or
Claim to be entitled-
To render a contractual performance substantially different from that which was reasonably expected of him
In respect of the whole or any part of his contractual obligation, to render no performance at all.

There is an important exception and that is the requirement that any attempt to limit or exclude liability under any contract should be reasonable in all of the circumstances of the particular case. It is obvious that Section 3 of the 1977 Act  is aimed at offering sufficient insurance that any party purchasing an article pursuant to contract for the sale of goods should be able to anticipate that goods purchased are fit for the purposes for which they are purchased.  It therefore follows that any exclusion clause that functions to defeat this kind of contractual purpose will not be capable of standing up against the purchaser.  This is the rule of thumb whether or not the exclusion clause is clear and contained in a contract signed by the parties.

If there is any doubt about the intent of Section 3 with respect to the main purpose of a sale of goods contract, Section 14 removes all doubt.  Section 14 of the Sale of Goods Act 1979 also applies to exceptions against the validity of the exclusion clause.  The result is that any term forming a part of the terms and conditions of a contract for the sale of goods must be interpreted by reference to Section 14.  Section 14 essentially protects the purchaser of goods to the extent that any person who purchases goods from a business is entitled to assume from the start that the goods are of merchantable quality.

The Ruling in Regus (UK) Ltd v Epcot Solutions Ltd
The ruling in Regus must be considered by reference to Section 11 of the Unfair Contract Terms Act 1977 which provides that contractual term is deemed unreasonable unless in the circumstances
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.

From the discussion thus far it has been established that the courts have taken account of a number of factors when ascertaining whether or not an exclusion from liability clause is reasonable.  These factors include
The parties bargaining position.
The parties participation in negotiating the terms of the clause.
The steps taken to bring the exclusion clause to the other partys attention.

The case of Regus essentially examines the test set forth for reasonableness in the construction of an exemption clause by reference to Section 11(1) of the Unfair Contract Terms Act 1977.  Essentially the Court of Appeal took into account a number of scenarios that should be focused on in determining whether or not an exclusion clause would be unreasonable between two businesses in a commercial contract.  While the question of reasonableness will be markedly different between two businesses in a commercial contract it will not alter the position between a business and a consumer under a commercial contract.  This is because the test for what is reasonable as it relates to an exclusion clause, will take into account the relative bargaining positions of the parties so that what may be reasonable between two businesses will not be reasonable between a business and a relatively weaker party.

In the Regus case, Regus provided office services and entered into a contract with Epcot who provide IT training and occupied one of Regus offices at Heathrow.  At some stage, Regus closed down its offices at Heathrow with the result that Epcot had to relocate.  The issues included the fact that Epcot incurred damages as a result of having to relocate, including the fact that the air conditioning at the new premises did not work properly so that employees were becoming sick.  Regus did not attempt to have the air conditioning unit repaired and the relationship between the parties eventually soured and Regus claimed fees had not been paid by Epcot and the latter counterclaimed that Regus had breached the contract which included a claim for loss of profits.  Regus in turn argued that there was a valid exclusion clause excluding liability for loss of profits and in any event, Epcot had the responsibility of taking out an insurance against such losses.

The High Court ruled that the exemption clause was unreasonable because it left Epcot with no real remedy in the event of a breach of contract.  The Court of Appeal disagreed on the grounds that the clause was not unreasonable in that Epcots CEO was essentially an intelligent and experienced businessman who was quite current with the standard terms of Reguss business operations and Epcot had a corresponding term in its own business contract.  Moreover, Epcots CEO had fully participated in negotiating the terms of the contract, including the exclusion from liability.   The Court of Appeal also ruled that although Regus was bigger in terms of business size than Epcot was, there was no inequality of bargaining position because there were a number of business alternatives to Regus that Epcot could have turned to.  Moreover, Epcot was at liberty to take out an insurance policy against such losses.  Therefore, in all the circumstances, the clause exempting liability was not unreasonable.

Conclusion
The test of reasonableness as used in the Regus case is not a departure from the established authorities which essentially ruled that what is reasonable is entirely dependent upon the facts of the specific case.  Although Regus might mean a different standard for business to business commercial contracts it cannot stand as a precedent for the standard to be applied in the consumer to business commercial contract.  This is because there is generally a presumption that the consumer is a weaker party to the business, therefore the emphasis on equality of bargaining position in the Regus case will only apply to business to business commercial contracts.  Moreover, statutory provisions such as those found under the Unfair Contract Terms Act 1977 and discussed in this paper will offer protection of the consumer in the event of an exclusion clause.

Another fact of note that distinguishes Regus from the previously decided cases and those discussed in this case is the fact that the parties freely negotiated the terms of the contract.  This is not often the case in the consumer to business commercial contract.  In the latter type of commercial contract, the consumer is typically presented with the standard terms of the contract on a take or leave basis and cannot be said to have freely negotiated the terms of the contract.  When all is said and done, the Regus case is not a dangerous precedent in that it will render virtually all exemption clauses reasonable.  What is reasonable is subject to the same conditions as before.  In other words all of the facts and the circumstances of the case will be taken into account.  The best that can be discerned is that, Regus merely adds to the growing list of case laws in terms of what factors can be taken into account when determining what is reasonable.  In this regard, it only takes a narrower approach to what is reasonable when two businesses of equal strength and intelligence come together and negotiate the terms of a contract.