#17242 - Exemption Clauses - GDL Contract Law

For all exemption clauses must look at three things:

• Incorporation – above

• Construction – above/below

• Unfair Terms – below

Two approaches to exemption clauses

• McKendrick: a social nuisance, imposed on a contracting party who lacks a real ability to take issue with them, or the commercial clout to insist that they should be modified.

• A useful business tool, they are the fine tuning of the contract allowing for effective freedom of contract regarding risk allocation.

Contra proferentem: an ambiguity will be resolved against the party who is seeking to rely on the exemption.

More generally this means that courts will generally read exemption clauses very narrowly:

• Wallis v Pratt & Haynes [1911] – D sold seed to P who sold it on. Supplied as “common English sainfoin”, but when it germinated it was found to be giant sainfoin, an inferior strain. Exclusion cause read: “Sellers give no warranty, express or implied, as to growth, description, or any other matters...”.

  • HoL Held that a failure of a seed to match its description amounted to a breach of condition.

If an exclusion clause is repugnant to the contract itself then it may well be deprived of effect by the court

• Andrews Bros v Singer [1934] – D appointed P as dealers to buy ‘new singer cars’ from them and sell them on. Clause read: “all conditions, warranties and liabilities implied by common law, statute or otherwise are excluded”.

  • One of the cars was not new. Had been driven 550miles to show to customer.

  • CA held that the clause was not effective. It ousted implied terms not express ones (namely that the car must be ‘new’)

  • Benjamin on Sale:

    • Once the court has decided that the sale was a sale by description of “new Singer cars” then nothing else could satisfy the contract and by no artifice could the seller avoid the obligation to provide new Singer cars.

    • Otehrwise seller could ignore other words: need not be a singer? Need not be a car?

A court will usually find liability for a fundamental breach of contract regardless of an exclusion clause:

• Chanter v Hopkins (1838) – Lord Abinger said “If a man offers to buy peas of another, and he sends him beans, he does not perform his contract”.

• Karsales (Harrow) v Wallis [1956] – Wallis lacked money to buy car outright, so owner sold it to Karsales who gave it to Wallis on a hire purchase agreement. Car was subsequently towed to Wallis’s premises at night and left. Part of the engine was missing, two pistons were broken, the tyres damaged and the radio had been removed.

  • Karsales relied on clause which stated “No condition or warranty that the vehicle is roadworthy, or as to its age, condition or fitness for any purpose is given by the owner or implied herein”.

  • CA held ineffective as the agreement related to a car: The vehicle in question could no longer be regarded as a car, because it was so grossly damaged as to be incapable of self-propulsion.

  • Peas and beans case.

• Harbutt’s Plasticine v Wayne Tank [1970] - Lord Denning proposed that where a fundamental term of a contract (ie. a condition) had been breached, and the wronged party had elected to terminate the contract, then with the termination of contract any exemption clause contained within it ceased to operate.

  • Unfortunately this is wrong, as termination for a contract does not deprive clauses of further effect – they are still relied upon to give a party the right to recover damages. Based on a misunderstanding of HoL speeched in Suisse Atlantique [1967]

  • Overruled in Photo Production

• Photo Production v Securicor Transport [1980] – D provided night patrol service to Photo Productions, for a low charge of 8 15s/week for several visits a night. Clause stated that d was not “responsible for any injurious act or default by any employee…unless it could be foreseen or avoided”

  • An employee lit a fire by throwing a match on some cartons. This caused damages <600k.

  • HoL (reversing CA and overruling Harbutt) held that the doctrine of fundamental breach was a rule of construction only. The clause was effective.

  • A fundamental breach does not avoid the contract.

• Exception: Bailment and Carriage of goods

  • Here something similar applies. Any deviation from the agreed voyage, or diversion of the goods from where they were to be kept, will take the defendant “outside the four quarters of the contract” and beyond the protective reach of exclusion clauses.

The Exclusion of Liability for Negligence:

• Canada Steamship Lines v The King [1952] – The plaintiffs’ goods were stored in a shed which the defendant had leased from the Crown. As a result of the negligence of the defendant the shed caught fire and the goods were destroyed. A clause in the lease stated that the lessee should have no claim against the lessor for goods stored in the shed.

  • PC held that that the clause was wide enough to cover negligently caused loss as well as other types of loss. The clause would be deemed to have been intended to cover those other liabilities, and not to shield the Crown against the consequences of its servants’ negligence.

  • Lord Morton summarised:

    • 1)If the clause specifically refers to negligence, it must be deemed to cover that head.

    • 2) If there is no express reference to negligence the court must consider if the words are wide enough to cover negligence.

    • 3) If the words are wide enough, then are they too wide? May the head of damage may be based on some ground other than that of negligence that is not too ‘fanciful or remote’. In this case it does not cover negligence.

• Hollier v Rambler Motors [1972] – P left his car for repair at D’s garage. D’s negligence caused a fire that badly damaged the car. Clause: “The company is not responsible for damage caused by fire to customers’ cars on the premises”.

  • Salmon LJ applies the Canada Steamship rules: No doubt merchants, tradesmen and garage proprietors and the like are a little shy of writing in an exclusion clause quite so bluntly as that.

  • But held that it had not been validly incorporated therefore ineffective.

• Donaldson LJ in The Raphael [1982] explains the psychological reasoning underpinning this. Parties do not generally turn their minds to negligent damage in writing contracts.

• White v Warwick [1953] – Mr White hired a tradesman's bike from the defendants. He was thrown off the bike and injured when the saddle tipped up. Clause 11 of the agreement provided that the defendants would not be liable for any: '[P]ersonal injuries to the riders of the machines hired…'

  • Held this clause excluded contractual liability (to provide bike fit for purpose) but not for negligence.

• Alderslade v Hendon Laundry [1945]– ten handkerchiefs lost by laundry. Exclusion clause limited liability for lost items to twenty times cost of laundering (11s 5d). Cost of handkerchiefs was 5.

  • Held clause did cover damage resulting for negligence as the only way could be lsot was through negligence.

The function of exemption clauses:

• Professor Coote: prefers “exception” to “exemption”. His view is that exemptions are no different from any other provisions in contracts.

• Compare:

  • (a) the sale of a horse warranted to be sound, but an exclusion of liability for its performance in hunting; and

  • (b) the same horse warranted sound except for hunting.

• But, the courts have usually viewed exemption clauses as defences: Scrutton LJ in Rutter v...