Common Law Control (AQA A-Level Law): Revision Notes
Common Law Control
Introduction
When one party holds a dominant position in a contract (typically a business) and attempts to use an exclusion clause to their advantage against the weaker party (usually a consumer), the courts have developed common law rules to decide whether the clause should be valid or rejected.
The courts apply two key tests to determine if an exclusion clause can be enforced:
- Incorporation – The clause must be properly included as part of the contract
- Construction – The clause must be interpreted by the courts to ensure it protects against genuine loss rather than creating unfair advantages
Incorporation of the clause
General rule
An exclusion clause must be brought to the attention of the other party before or at the time the contract is formed. The clause can be incorporated into a contract through several methods.
The timing of incorporation is crucial - the clause must be communicated before or when the contract is made, not afterwards. If a party only becomes aware of an exclusion clause after agreeing to the contract, it will typically not be binding.
Incorporation by signature
Where parties sign a contract, the legal principle of caveat emptor (let the buyer beware) applies. This means:
- You agree to what you sign
- You are bound by the exclusion clause even if you have not read the entire contract
L'Estrange v Graucob (1934) established that signing a contract binds you to all its terms, including exclusion clauses, regardless of whether you read them. This is a strict rule that places responsibility on the signing party to read and understand what they are agreeing to.
Incorporation by notice
When a contract is not signed, an exclusion clause will only be binding if the party had express knowledge of it at the time the contract was made. The clause might appear on a sign or document given to a party.
Case Study: Olley v Marlborough Court Hotel (1949)
Facts: A notice displayed in a hotel room attempted to exclude liability for lost or stolen property.
Decision: The notice was ineffective because the contract had already been formed at reception when the guests checked in.
Key Principle: The clause must be communicated before or when the contract is made, not after.
Case Study: Chapelton v Barry UDC (1940)
Facts: An exclusion clause was printed on the back of a ticket for hiring a deck chair.
Decision: The clause was held to be insufficient notice as the ticket was merely a receipt, and a reasonable person would not expect contractual terms to be printed on it.
Key Principle: The nature and timing of the document matters when determining whether it provides adequate notice.
Misrepresentation of the clause
If the exclusion clause has been misrepresented to the other party, the clause will not be binding.
If a business employee verbally misrepresents the effect or content of an exclusion clause, the party cannot later rely on the written clause to escape liability. This prevents businesses from misleading customers about their rights.
Requirements for valid notice
For an exclusion clause to be enforced through notice, one of the following must apply:
- The party had knowledge of the clause (perhaps from previous contracts with the same business)
- Reasonable steps were taken to bring the exclusion clause to the party's attention
What constitutes "reasonable steps" depends on the circumstances. More unusual or onerous clauses require more prominent notice. For example, a clause that completely excludes all liability would need to be drawn to a party's attention more clearly than a minor limitation clause.
Incorporation through previous dealings
If parties have contracted together before, an exclusion clause may be binding based on previous knowledge, even if the clause was not specifically brought to their attention in the current transaction.
Case Study: Hollier v Rambler Motors (AMC) Ltd (1972)
Facts: The claimant had used the defendant's garage services three or four times over five years, and on previous occasions had signed forms containing exclusion clauses.
Decision: The court held that this was insufficient to establish a consistent course of dealing that would incorporate the clause without express notice.
Key Principle: Previous dealings must be sufficiently regular and consistent to incorporate terms automatically. Occasional transactions over several years are typically not enough.
Incorporation through trade custom
A term can be incorporated through trade custom where both parties operate in the same or similar markets and would reasonably expect such terms to apply as standard practice in their industry.
Trade custom incorporation typically applies in business-to-business contracts where both parties are familiar with industry standards. It is less likely to apply in consumer contracts where one party may not be aware of trade practices.
Construction of the clause
Once a clause has been incorporated into the contract, the courts must interpret (or "construct") it to determine whether it achieves its intended purpose without unfairly penalizing the other party.
The contra proferentem rule
The primary rule of construction is the contra proferentem rule, which means "against the person putting forward." This rule operates as follows:
- Any ambiguity in the wording of an exclusion clause must be interpreted against the party who drafted it or seeks to rely upon it
- This protects the weaker party from unclear or deliberately vague terms
The Contra Proferentem Rule in Practice
When courts interpret exclusion clauses, they resolve any doubt or ambiguity against the party trying to rely on the clause. This creates an incentive for businesses to draft clear, unambiguous terms rather than using vague language that might be interpreted broadly.
Hollier v Rambler Motors (AMC) Ltd (1972) also demonstrates the application of the contra proferentem rule in interpreting ambiguous exclusion clauses. Unclear wording will be construed in favor of the party who did not draft the clause.
Exclusion clauses and negligence
Where an exclusion clause is intended to cover negligence, the courts require very clear words to be used. Vague language will not suffice to exclude liability for negligent acts.
Excluding Liability for Negligence
To successfully exclude or limit liability for negligence, a clause must:
- Use express, unambiguous language that clearly refers to negligence
- Not leave room for interpretation that it might apply only to other types of liability
- Be brought prominently to the other party's attention
General phrases like "no liability for any loss" are unlikely to be sufficient to exclude negligence liability without explicit reference to negligence or fault.
Exam guidance
Key Points for Problem Questions:
- Just because a party has signed an agreement does not automatically make an exclusion clause valid
- The clause must be properly incorporated into the contract through one of the recognized methods
- The clause must also satisfy any applicable statutory regulations (covered separately under statutory control)
- Always identify which method of incorporation applies in a problem question (signature, notice, previous dealings, or trade custom)
- Apply the contra proferentem rule when interpreting ambiguous clauses - resolve doubts against the party relying on the clause
- Look for timing issues - was notice given before or when the contract was formed?
- Consider whether the clause attempts to exclude negligence liability and whether sufficiently clear words are used
Remember!
Essential Points to Recall:
- Common law control uses two tests: incorporation and construction
- Incorporation by signature binds parties under the principle of caveat emptor (L'Estrange v Graucob)
- Incorporation by notice requires knowledge before or at contract formation (Olley v Marlborough Court Hotel; Chapelton v Barry UDC)
- Previous dealings or trade custom can incorporate terms even without express notice, but dealings must be sufficiently regular
- The contra proferentem rule interprets ambiguities against the party relying on the clause
- Very clear words are needed to exclude liability for negligence - vague language is insufficient