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Medium2 marksMultiple Choice
The law of obligationsThe law of obligationsExemption clauses
This question is part of a case study — click to read the full scenario(Case 46)

Section B - Scenario 1

NovaStream Ltd is a tech startup developing AI software. On 1st May, NovaStream emails a supplier, DataCore, offering to buy 50 servers for £100,000, stating 'Please reply by 5th May'. On 2nd May, DataCore posts a letter accepting the offer. On 3rd May, NovaStream finds a cheaper supplier and emails DataCore revoking the offer. DataCore's letter of acceptance arrives on 6th May.

Has a binding contract been formed between NovaStream Ltd and DataCore?

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ACCA · Question 47 · The law of obligations

Section B - Scenario 1

NovaStream Ltd is a tech startup developing AI software. They enter into a contract with a client, TechCorp. The contract contains a clause stating: 'NovaStream Ltd accepts no liability whatsoever for any financial loss or physical injury caused by bugs in the software.' A bug in the software causes a server to overheat and catch fire, injuring a TechCorp employee.

Under the Unfair Contract Terms Act 1977 (UCTA), what is the legal status of this exemption clause?

Answer options:

A.

The entire clause is completely valid as it was agreed between two businesses.

B.

The entire clause is void because it is a standard form contract.

C.

The clause is void regarding the physical injury, and subject to the reasonableness test regarding the financial loss.

D.

The clause is valid for physical injury but void for financial loss.

How to approach this question

Apply the provisions of UCTA 1977 regarding the exclusion of liability for negligence, distinguishing between personal injury and other types of loss.

Full Answer

C.The clause is void regarding the physical injury, and subject to the reasonableness test regarding the financial loss.✓ Correct
Under Section 2 of the Unfair Contract Terms Act 1977, a business cannot exclude or restrict liability for death or personal injury resulting from negligence. Any clause attempting to do so is void. For other types of loss (like financial loss or property damage), the clause is only valid if it satisfies the requirement of reasonableness.

Common mistakes

Assuming businesses have complete freedom of contract to exclude all liabilities.
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