1. LEARNING OBJECTIVES :

The aim of this topic is to enable students to:• Understand the effects of exclusion clauses• Identify the various types of exclusion clauses• Whether it can be enforced by the court in excluding liabilities

2. LEARNING OUTCOME

A successful student will be able to;• Explain the effects of exclusion clauses• Describe the various types of exclusion clauses

1. What is an Exclusion Clause?

• An exclusion clause is a term in a contract that seeks to restrict the rights of the parties to the contract.

• One can almost expect that in every standard contract, exclusion clauses are intentionally included to exempt the party who drew up the standard contract from certain liabilities.

• Exclusion clauses are enforceable in the court of law ie valid –

• However fundamental breach of contract can not be exempted under Exclusion Clauses

• An exemption clause is a term in a contract which tries to exclude, or limit, the liability of a party in breach of the agreement.

1. True exclusion clause: The clause recognises a potential breach of contract, and then excuses liability for the breach. Alternatively, the clause is constructed in such a way it only includes reasonable care to perform duties on one of the parties.

2. Limitation clause: The clause faces a limit on the amount that can be claimed for a breach of contract, regardless of the actual loss.

The parties agree that any action in relation to an alleged breach of this Agreement shall be commenced within one year of the date of the breach, without regard to the date the breach

is discovered. Any action not brought within that one year time period shall be barred, without regard to any other limitations period set forth by law or statute.

Time is of the essence for the completion of the work described in this contract. It is anticipated by the parties that all work described herein will be completed within two (2) weeks of the date of

execution, and that any delay in the completion of the work described herein shall constitute a material breach of this contract.

The subcontractor agrees to indemnify and hold harmless the contractor against loss or threatened loss or expense by reason of the liability or potential liability of the contractor for

or arising out of any claims for damages.

Be careful with this type of clause, as it can significantly increase your exposure in the extent of an unexpected event or breach of the contract.

1. Time limitation: The clause states that an action for a claim must be commenced within a certain period of time or the cause of action becomes extinguished.

INCORPORATION OF

EXCLUSION CLAUSE

INTO THE CONTRACT

Before one can rely on an exclusion clause to bring an action, parties must first make sure that the exclusion clause has been incorporated into the contract. There are three ways in which such a term maybe inserted into a contractual agreement.

1. SignatureIf a person signs a contractual agreement, then they are bound by its terms, even ifthey did not read it. L’Estrange v Graucob (1934)Facts: The plaintiff had signed a contract of sale without reading it.Held: The court held that she was bound by the terms which contained an exception

clause.

This rule may be avoided where the party seeking to rely on the exclusion clause misled the other party into signing the contract.

 Curtis v Chemical Cleaning and Dyeing Co (1951)

Facts: The plaintiff signed a ‘receipt’ when she took a dress to be cleaned, on being told that it was to protect the cleaners in case of damage to the sequins. In fact, the clause excluded liability for all damage.

Held: that the cleaners were not protected for damage to the dress, the extent of the clause had been misrepresented and therefore the cleaners could not rely on it.

 

2. Notice

In order for notice to be adequate, the document bearing the exclusion clause must be an integral part of the contract, and given at the time the contract is made. The recipient must have had reasonable notice of them.

 

Chapleton v Barry UDC (1940)

Facts: On hiring a deck chair, the plaintiff was given a ticket with only a large black 3d on the face of the ticket, and exclusion clauses on the back.

Held: The defendants could not rely on the exclusion clauses as it was not apparent on the face of it that the ticket was a contractual document, rather than just a receipt.

  Olley v Malborough Court Ltd (1949)

Facts: Mr. And Mrs. Olley saw a notice on the hotel bedroom wall which stated ‘the proprietors will not hold themselves responsible for articles lost or stolen, unless handed to manageress for safe-keeping.’

Held: The contract had been entered into on registration, and the clause was therefore not incorporated into the contract and could not protect the proprietors.

 

The greater the exemption, the greater the degree of notice required.

 

Thornton v Shoe Lane Parking Ltd (1971)

Facts: The plaintiff made his contract with the car company when he inserted a coin in the ticket machine. The ticket was issued afterwards, and in any case referred to conditions displayed inside the car park which he could see only after entry.

Held: Notice therefore came too late.

 

3. Custom

Previous dealings on the basis of an exemption clause may include the clause in later

contracts.

 

Spurling v Bradshaw(1956)

Facts: Bradshaw deposited some orange juice in Spurling’s warehouse. The contractual

document excluding liability for loss or damage was not sent to Bradshaw until several days

after the contract.

Held: that the exclusion clause was valid, as the parties had always done business with each

other on this basis.

 

However, actual knowledge of the exclusion clause is required.

 

Hollier v Rambler Motors (1972)

Held: That bringing a car to be serviced or repaired at the garage on 3 or 4 occasions over a

period of 5 years did not constitute a course of dealing.

 

EC has to be controlled so that;• It would not have unfair effects on any parties to a contract• Make the parties to a contract be answerable and accountable for major /serious damages

There are 3 judicial controls of EC

1. Strict Literal Interpretation

• For an exclusion clause to operate, it must cover the breach If there is, then the type of liability arising is also important.

• Generally, there are two varieties of liability;– Strict liability (liability arising due to a state of affairs without the party at breach necessarily being at

fault) and– Fault liability ( liability in negligence)

• The courts require the party relying on the clause to have drafted it properly so that it exempts them from the liability arising, and if any ambiguity is present, the courts usually interpret it strictly against the party relying on the clause.

• The judge in R & B Custom Brokers Co. Ltd. v United Dominions Trust Ltd. refused to allow an exemption clause, of which did not cover the nature of the implied term on the grounds that it did not make specific and explicit reference to that term.

JUDICIAL CONTROL OF EC…

EXAMPLES OF UNCLEAR & AMBIGUOUS

EXCLUSION CLAUSES

2. Contra Proferentum Rule

• Contra proferentum is a rule which provides that an ambiguous term will be construed against the party who imposed it. The interpretation will therefore favor the party that did not insist on its inclusion.

• The rule applies at the insistence of one party without negotiating with the counter-party. • Additionally, the rule applies only if a court determines the term to be ambiguous, which

often forms the substance of a contractual dispute.• The reasoning behind this rule is to encourage the drafter of a contract to be as clear and

explicit as possible and to take into account as many foreseeable situations as it can.

3. Statutory Control• Even if terms are incorporated into the contract and so would be effective, there are

various statutory controls over the types of terms that may have legal effect. The Unfair Contract Terms Act 1977 renders many exemption clauses ineffective. The Unfair Terms in Consumer Contracts Regulations 1999 provide further protection for consumers.

TUTORIAL QUESTION1. Explain how an exclusion clause may be incorporated into a contract.

 ( 25 marks)

 

2. Giovanni enters a car-park in his new sports car. As he does so, he has to take a ticket from a machine and a barrier is raised before he is able to drive into the car-park. He parks the car and puts the ticket safely in his wallet because he will need it when he leaves the car-park, but does not read it. The ticket clearly states that cars are parked according to the terms and conditions displayed in the office at the exit to the car-park. The terms and conditions state that cars are parked entirely at the risk of their owners.

Discuss the contractual liability that the owners of the car-park would have towards Giovanni if he was to return to his car to find that it had been deliberately damaged by a gang of youths.

( 25 marks)