(Read time: 10 mins)

Introduction:

The freedom to contract has navigated the direct allocation of risk between parties and created ringfencing around certain eventualities within the contract. However, some clauses to a contract may be viewed as unfair to the other party and therefore creating some limitations. The question then would be, are these limitations reasonable?
The Bill seeks to amend the Law of Contract Act with an aim to protect parties to a contract against unfair and unconscionable terms. The Kenyan legal system is highly founded on the English common law system. The proposed amendments will see a great shift from the freedom of contract towards a more vigorous judicial scrutiny focused on fairness.

KEY PROPOSALS:

  1. Prohibition on exclusion of liability arising out of Negligence.

The Bill introduces a new definition of negligence as the breach of an obligation arising from an express or implied term of a contract to take reasonable care or exercise reasonable skill in the performance of a contract. In practice, contractual clauses may seek to exclude liability to the extent of excluding death resulting from negligence in any case within the contract. The amendment seeks to abolish the introduction of exclusion clauses or restriction of liability for death caused by negligence through a contractual clause unless the contractual clause meets the requirement of reasonableness. In addition, the bill indicates that where the contractual term excludes or restricts liability for loss or damage arising out of negligence, the agreement between the parties shall not indicate any voluntary acceptance of risk.

  1. Prohibition against exclusion of liability arising out of breach of contract.

The Bill excludes suppliers from relying on contractual terms which exclude or restrict their liability to a consumer when: –

  1. The supplier is in breach of a contract;
  2. The supplier performs the contract in a way that is substantially different to what was reasonably expected of the supplier; and
  3. The supplier avoids performing the contractual obligations as a whole or in part.

Suppliers may only rely on such a contractual term only if they meet the requirement of reasonableness.

  1. Prohibition against exclusion of liability arising from the sale of defective goods

The Bill restricts suppliers from relying on contractual terms or reference through a written guarantee which limit their liability for loss or damage where such loss arises from defective goods while in consumer use and results from negligence in the manufacture or distribution of such goods.

  1. Prohibition against exclusion of liability in the hire purchase or sale of goods agreements:

Under the Bill, a person cannot exclude or restrict themselves through reference to a contractual term unless the term satisfies the requirement of reasonableness where the liability is in respect to transfer of ownership of the goods or give quiet possession to a person acquiring the goods in the contract.

Effects or Implications of the Bill

  1. A new phase of contractual review will rise in the legal space, and this will shape how drafters frame their contracts, intention of the parties will have a shift towards statutory requirement of reasonableness in exclusion clauses. This will necessitate the huge shift from the emphasis on freedom of contracts and create a more scrutiny of contractual clauses which will see numerous contractual reviews especially in long term contracts.
  2. The Courts will strongly implement the statutory requirement of the reasonableness when analyzing exclusion clauses in contracts. Courts will not just enforce exclusion clauses because the parties voluntarily agreed to the terms. This is likely to increase disputes over enforceability of existing contracts which may lead to rise in litigation or arbitration especially after parties had vigorously ring-fenced such eventualities through their contractual terms.
  3. Consumers shall have more protection of goods in use and pose a strict scrutiny to suppliers, manufacturers and retailers. Businesses shall no longer rely on reference to exclusion clauses unless they meet the threshold of reasonableness. This will push businesses to new risk allocation strategies and seek better protection for liability insurance.

Conclusion:

If the Bill is enacted to Law, there shall be an immediate shift towards review of standard exclusion clauses in existing and future contractual agreements. Businesses and individuals will seek a thorough assessment of the implications of their existing contracts in relation to limitation of liability and exclusion clauses in the event the Bill is made Law.

Disclaimer:

The information contained in this alert should neither be construed as legal advice from JRO ADVOCATES LLP and/or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter.
At JRO ADVOCATES LLP we continue to monitor the implementation of the law and provide first hand and prompt feedback. For more information or queries, please contact our team of experienced advocates for any clarifications or appointments through +254113230047 or via email through info@jroadvocatesllp.co.ke

Author:

Jocyline Omondi