This article looks at what a disclaimer is, the different types, unfair disclaimers, protection and requirements. We also provide a real life scenario of disclaimer in a contract.
What is a disclaimer?
Disclaimers are documents capable of limiting or exempting a business’ liability. They are also referred to as exemption clauses. They are a useful tool for mitigating risk and protecting against liability in situations that are beyond your control. Usually, a disclaimer is used by a company to shield itself from legal claims associated with user or third-party risk. In other circumstances, disclaimers are used to inform, clarify or warn the consumer.
What are the different types of disclaimers?
It would be impossible to provide a comprehensive list of all the types of exemption clauses. Some of the most common exemption clauses will fall into the following categories:
- Clauses purporting to exclude liability completely or partially (e.g. excluding liability for consequential losses), and those clauses limiting liability to a particular sum (e.g. the price payable under the contract).
- Clauses that limit the remedy available either by imposing a short time limit during which claims for breach must be made, or by imposing onerous conditions on obtaining the remedy.
Considering that a large proportion of disclaimers are invalid from a legal standpoint, it is worth examining the reasons why and the relevant legal provisions.
Unfair disclaimers and consumer protection
Disclaimers between producers and consumers are subject to the new fairness test introduced in the UK under Section 62 of the Consumer Rights Act 2015. Any disclaimer deemed to be an unfair term under the Act is not binding on the consumer.
Schedule 2 of the Consumer Rights Act 2015 contains a non-exhaustive list of terms which may be regarded as unfair under Section 62. Examples potentially relevant to disclaimers are:
- A term which has the object or effect of excluding or limiting the trader’s liability in the event of the death of or personal injury to the consumer resulting from an act or omission of the trader.
- A term which has the object or effect of inappropriately excluding or limiting the legal rights of the consumer in relation to the trader or another party in the event of total or partial non-performance or inadequate performance by the trader of any of the contractual obligations, including the option of offsetting a debt owed to the trader against any claim which the consumer may have against the trader.
- A term which has the object or effect of excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy, in particular by
- requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions,
- unduly restricting the evidence available to the consumer, or
- imposing on the consumer a burden of proof which, according to the applicable law, should lie with another party to the contract.
With respect to the exclusion of negligence liability, Section 65 of the Consumer Rights Act 2015 reads as follows:
(1) A trader cannot by a term of a consumer contract or by a consumer notice exclude or restrict liability for death or personal injury resulting from negligence.
(2) Where a term of a consumer contract, or a consumer notice, purports to exclude or restrict a trader’s liability for negligence, a person is not to be taken to have voluntarily accepted any risk merely because the person agreed to or knew about the term or notice.
Unfair Contract Terms Act (UCTA) 1977
The UCTA 1977 applies to clauses included in business-to-business contracts in the UK which aim to exclude or restrict liability (disclaimers). Section 2 deals with attempts to exclude or restrict liability for negligence. Under s 2(1) liability for negligently caused death or personal injury cannot be excluded or restricted (automatic ineffectiveness). Under s 2(2) liability for other negligently caused loss or damage can be excluded or restricted if the requirement of reasonableness is satisfied.
Scenario of disclaimer
In 1992, Mrs Liebeck, a 79-year-old woman, bought a cup of coffee from her local McDonald’s drive-through in Albuquerque, New Mexico. She was sitting in the passenger seat of her grandson’s parked car. She put the cup between her legs in order to add sugar to the coffee. As Mrs Liebeck pulled back the lid to open it, she spilt the coffee on her lap and burnt herself. The doctors determined that she had suffered third-degree burns on six percent of her skin and lesser burns over 16% of her skin. Mrs Liebeck took McDonald’s to court.
During the trial, it was admitted as evidence that McDonald’s required its franchises to sell coffee at a temperature of 82–88°C. At that temperature, it takes the liquid between two to seven seconds to cause serious burns. In the previous 10 years, McDonald’s had received more than 700 reports of customers burning themselves from the coffee. Some of the claims were settled out of court for damages worth up to $500,000. On the back of McDonald’s refusal to settle the case, Mrs Liebeck claimed against the company alleging ‘gross negligence’ for selling ‘unreasonably dangerous’ and ‘defectively manufactured’ coffee. The jury awarded Mrs Liebeck almost three million dollars in damages. This was reduced to $640,000 by the trial judge.
You may wonder why this lawsuit is relevant to the issue of disclaimers. The "Caution: Contents Hot" label found on most disposable drink cups and lids was introduced by McDonald’s and other companies after the Liebeck lawsuit, to protect themselves from such claims, in response to the trial judge’s finding that the McDonald’s customers were not adequately informed of the burn risk that came with consumption of their coffee.
Legal scholars argued that Mrs Liebeck’s claim would have failed had McDonald’s included a disclaimer reading "Caution: Contents Hot" on their cups. Considering the magnitude of damages, this case perfectly illustrates how critical the use of disclaimers can be for companies with respect to avoiding liability.
What is the requirement of reasonableness?
There is no definition for the concept of reasonableness in the context of unfair disclaimer terms. The judges are afforded a high degree of discretion. The courts ‘must entertain a whole range of considerations, put them in the scales on one side or the other, and decide at the end of the day on which side the balance comes down’. Notwithstanding, there are a few factors that point to the reasonableness of a clause, at least in the commercial context:
- Equality of bargaining position,
- Whether it is generally accepted in the industry, and
- Whether it is a clause allocating a particular risk between two parties, thereby avoiding duplicate insurance.
Disclaimers are an effective means of protecting your company against liabilities arising out of user or third-party risk. Make sure to check that your disclaimer is enforceable by referring to the provisions on unfair terms under the Consumer Rights Act 2015 and the Unfair Contract Terms Act 1977.
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The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.