Express Undertakings

If an oral undertaking is given by the proferens the courts will regard the oral undertaking as taking priority over the printed terms in a standard form agreement.32

In J. Evans & Son (Portsmouth), Ltd. v Andrea Merzario, Ltd. (1976, England), Evans & Son, an importer of machines, arranged the carriage of the machines to England under contract with A. Merzario, a forwarding agent. A. Merzario orally assured Evans & Son that machines shipped in containers would be carried under deck. Nevertheless, eight containers carrying Evans & Son’s machines were subsequently loaded on deck. One container fell overboard and was a total loss. A. Merzario denied liability, relying on an exemption clause in the contract of carriage. It was held that the A. Merzario’s oral assurance overrode the exemption clause, and that it was liable for breach of the warranty given.33

Fraud or Misrepresentation

A party who misrepresents (albeit innocently) the contents or effect of a clause inserted by it into a contract cannot rely on the clause in the face of the misrepresentation.34

Denning L.J., dealing with the question of exemption clauses generally, said:

Note!  Misrepresentation is so intrinsic to the sale of Endowment Mortgages and similarly constructed Investment Products that it will be dealt with in much greater detail later in this Chapter.

Reasonableness

The theory of freedom of contract presupposed that any party to a contract is free to choose whether or not to enter into it, and regarded a party who chose to enter into a contract which is onerous as only having itself to blame.36

However, it is now seen (as already outlined in Section 2.2.3, with respect to standard form contracts) that the bargaining powers of the parties may be so unequal that one can virtually dictate terms to the other. As long ago as 1877, in Parker v South Eastern Railway Co., Bramwell L.J. asked what the position would be if some unreasonable condition were inserted. He thought that ‘there is an implied understanding that there is no condition unreasonable to the knowledge of the party tendering the document and not insisting on its being read...'.

Lord Denning M.R. on numerous occasions maintained that an exemption clause would not be given effect if it was unreasonable, or if it was unreasonable to apply it in the circumstances of the case, for ‘there is the vigilance of the common law which, while allowing freedom of contract, watches to see that it is not abused’.37

While this approach has not been accepted as part of the common law,38 the views as expressed above by Lord Bramwell and Lord Denning are again clear manifestations of the fact that ‘the virtue of the general law, despite all inexpertness of the judges and sometimes of their formalism, has lain and does lie in a drive toward fairness, toward sane balance’.39

The decision as to whether or not an exemption clause can be classified as reasonable is therefore a matter for the Court to decide having regard to the particular circumstances of the case.

In certain circumstances the power to strike down contractual terms limiting liability that are found not to be fair and reasonable has been conferred by statute, most notably, in the U.K., under the Misrepresentation Act 1967, the Unfair Contract Terms Act 1977, and the Unfair Terms in Consumer Contracts Regulations 1995 (these were replaced in 1999),40 and in Ireland, under the Sale of Goods and Supply of Services Act 1980 and the Unfair Terms in Consumer Contracts Regulations 1995 (amended in 2000). (See Note! below regarding the Unfair Terms in Consumer Contracts Regulations.)

Where, within the ambit of these Acts, a question arises as to whether a term, agreement or provision is fair and reasonable, test criteria are set out, in The Reasonableness Test, that give definition as to what would strike down an exemption clause, and (non-exhaustive) Guidelines are also set out for the matters to be taken into account for application of this Test.