#4607 - Exemption Clauses 1 - GDL Contract Law

• Exemption clauses are contractual terms that purport to limit or exclude a liability that would otherwise attach itself to one of the contracting parties (obligations affected may be contractual or tortious)

• Lord Diplock in Photo Productions v Securior Transport: a clause ‘which excludes or modifies an obligation, whether primary, general secondary or anticipatory secondary’

  • Primary: from the contract

  • Secondary: to compensate if there is a breach

• Definitional view: Laissez Faire/Freedom of contract

• Exclusory approach: Modern approach – paternalistic/interventionist

Enforceability:

1. Incorporation: is the EC part of the contract

2. Construction: is it effective in excluding or limiting liability

3. Statutory Controls: UCTA/Regulations

Incorporation

1. Signature

2. Notice, or

3. A course of dealing

• Incorporation must occur: (a) at or before the time of contracting and (b) the clause must appear on a contractual document

1. Incorporation through signature

   • When a document containing contractual terms is signed without there being misrepresentation, the signing party is bound (whether or not they have read it

     • L’Estrange v Graucob: Since E had signed the contract it was irrelevant that she had not read it, even though the sales agreement was in ‘regrettably small print’

   • Exceptions:

1. Overriding oral assurance: if the meaning of the clause has been orally misrepresented to the other party it will not be incorporated (Curtis v Chemical Cleaning) – here the sales person said the EC related to damage ‘to beads and sequins’ but it was actually for everything

2. Nature of document: signature will not incorporate an EC if the document signed does not have contractual effect (Grogan v Robin Meredith – EC written on a timesheet)

3. Non est factum: where a person signs a document under a fundamental mistake, through no fault of his own, as to the character or effect, then this common law remedy may make the contract void (“this is not my deed”)

   • Ie fraud: blind/senile

   • Saunders v Anglia Building Society: here the contract was not void (party who signed contract claimed her glasses were broken)

2. Incorporation through notice

   • Party relying on EC must show that he took reasonable steps to bring it to the attention of the other party

   • Incorporation by reference:

     • Parker v South Eastern Railway: ticket which said ‘see back’ with the printed notice on the back: was held that the notice was clear and the ticket was a common form of contractual document – the company had taken reasonable steps

     • Thompson v London, Midland & Scottish Railway: ticket said ‘see back’, and the back directed C to the standard conditions set out in a railway timetable. The C was bound even though he could not read (decision would have been different if the company had been aware of the C’s inability)

       • Harvey v Ventilatorenfabrik: party relying on the clause knew that the other could not read the language in which the clause was expressed so it was not incorporated

     • O’Brien v MGN: T&Cs were in a different edition of the Daily Mail to the scratch card - this was sufficient for incorporation by reference

     • When a document does not have clear words on the face of it, directing attention to an EC on the reverse – it is unlikely that the clause will be incorporated: Henderson v Stevenson

     • Similarly – if there are clauses that have been rendered illegib le then they are unlikely to be deemed incorporated: Sugar v London, Midland & Scottish Railway

   • The nature of the clause:

     • Where the clause is unusual or onerous, a higher degree of notice will be required: Thornton v Shoe Lane Parking (Lord Denning) – clause attempting to exclude liability for personal injury - ‘it would need to be printed in red ink with a red hand pointing to it’

     • Interfoto v Stiletto Visual: an onerous term will NOT be incorporated into a contract merely by inclusion in a standard printed contract (here it was a general contractual term)

     • Onerous terms must therefore be specifically drawn to the attention of the other party, either by special note or as Denning suggested in Spurling v Bradshaw, by printing them in red ink

     • Note: signature will incorporate even onerous clauses except in extreme circumstances (duress): Chemical Transport Inc v Exnor

3. Incorporation by a course of dealing

   • Where a clause has been brought to the notice of the other party during previous dealings, it may be implied into the current transaction

   • Need to show that course of dealing has been consistent over a period of time: McCutcheon v David MacBrayne – here it was not consistent as ‘sometimes’ customers had to sign risk note for risk to cars on ferry– it would need to be every time except the time in question

   • And regular:

     • Holier v Rambler Motors (AMC) Ltd – 3 or 4 transactions over a period of 5 years was insufficiently regular so was not incorporated

     • Harry Kendall & Sons v William Lillico: 3-4 times a month for 3 years: incorporated

     • Petrotrade Inc v Texaco: 5 times in 13 months: incorporated

Timing

• Reasonable notice must be given before or at the time of contracting: Olley v Malborough – E.C on the back of door in hotel was too late as the contract was completed at the desk

• Thornton v Shoe Lane Parking: Car park tried to rely on an EC which was on a sign inside the car park: but the contract occurred when he got the ticket out of the machine so the EC was too late

  • (Denning’s judgement here important for offer/acceptance where there are no humans - ticket coming out was offer, taking it was acceptance)

Contractual document

• EC not incorporated if the document in which is contained is not one that could be reasonably expected to have contractual force: Chapelton v Barry UDC: here the document was a tiny piece of paper which looked like a receipt – in the circumstances a reasonable person would not have known it contained contractual terms

• Grogan v Robin Meredith : timesheet merely evidenced contractual performance

Construction

• General rule: ECs will be construed contra proferentem (against the party seeking to rely on it) – although this will be less strict where the EC seeks only to limit (rather than exclude) liability - Ailsa Craig Fishing v Malvern Fishing

• Andrews Brothers v Singer: court held that EC excluding ‘all conditions, warranties, and liabilities, implied by statute, common law or otherwise are excluded ’ only exempted liability for implied terms, so no exclusion of the express term which was in fact breached

• Houghton v Trafalgar Insurance insurance company had excluded liability where a car was ‘travelling under excess load’ – here there were 6 passengers, but the courts calculated that in terms of weight this was not an excess load, so insurers still had to pay

Exemption clauses and negligence

• The Canada Steamship Test:

  • Limits scope of ECs by restricting operation so they generally only exclude strict contractual liability (absolute obligations)...