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Terms - Exemption Clauses
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Terms - Exemption Clauses
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Exemption ClausesLanguage
Exemption clauses – the generic term.
Exclusion clauses – clauses which attempt to remove liability altogether.
Commonly found in standard-form contracts (used commonly in a particular
industry, and isn’t individually negotiated).
Limitation clauses – clauses which attempt to restrict/limit the amount of damages
payable on breach.
Advantages
Speeds up the contracting process.
Can reduce the cost of contracting.
Advance allocation of risk – can insure.
Disadvantages
Lack of realistic alternative.
Use of standard-term contracts across many industries.
Lack of reasonable notice.
Use of small print.
Limitation clauses sometime make redress virtually worthless.
Three Basic Questions
Incorporation – is the clause actually part of the contract?
Construction – do the words of the clause cover the events that have occurred?
Legislation – is the clause covered by either CRA or UCTA?
Incorporation
1(a) - through a signature.
When a contract is signed, they are bound by the terms included in the document.
No matter whether the document had been read or not, the clause is incorporated
through the signature.
L’Estrange v Graucob (1934).
The claimant, L’Estrange, contracted to purchase a slot machine for cigarettes from
the defendant, Graucob, and the agreement included an express clause stating ‘This
agreement contains all the terms and conditions under which I agree to purchase the
machine specified above and any express or implied condition, statement, or
warranty, statutory or otherwise not stated herein is hereby excluded’.
The machine proved to be faulty and the claimant thus brought an action against the
defendant, alleging that the machine breached the Sale of Goods Act by not being of
merchantable quality.
The defendant asserted that the statute was made irrelevant by the express clause,
and that he was not in breach of the agreement they had made. The claimant
, responded she had been unaware of the clause as she had not properly read the
agreement and it ought not apply.
The Court of Appeal found for the defendant, determining that the express
provisions of the contract were binding and effectively excluded the relevance of
statutory sales provisions.
Furthermore, the fact that the claimant had not properly read the contract did not
impact its validity, as in signing the contract she consented to be bound by its
contents. Significantly this case emphasizes the Court’s respect for sanctity of
contract.
‘When a document containing contractual terms is signed, then, in absence of fraud,
or, I will add, misrepresentation, the party signing it is bound and it is wholly
immaterial whether he has read the document or not…’ – Scrutton, L.J.
Curtis v Chemical Cleaning Co. (1951).
The claimant, Curtis, took her wedding dress to be cleaned by a professional laundry
service, the defendants, the Chemical Cleaning and Dyeing Company.
Upon purchasing their services, the defendants asked the claimant to sign a form,
and she asked the service assistant what the consequences of signing would be. The
assistant replied that the form merely included an exclusion of liability clause for any
damage they may cause to any beading and sequins on garments, however in
actuality the exclusion of liability clause pertained to all possible damage that may
befall a garment whilst being cleaned.
When the claimant returned to pick up her dress, it had been damaged by the
defendants and she thus brought a claim for damages against them. In response, the
defendants submitted that she had no grounds for a claim due to the exclusion of
liability clause.
The Court of Appeal found for the claimant, viewing that whilst a party is typically
bound by all the contents of a signed written contract, even where they had not
properly read the contract, a clause ought not be deemed legally enforceable where
the drafting party misrepresents the effect of a clause to the other party. Thus, the
exemption of liability clause was not deemed properly incorporated into the contract
and the claimant was awarded damages.
1(b) - through consistent previous dealings.
Spurling v Bradshaw (1956).
Bradshaw sent eight barrels of orange juice to be stored at Spurling’s warehouse.
Spurling sent a receipt to Bradshaw on which were printed their conditions of
storage.
The conditions contained a clause purporting to exclude liability for any losses
resulting from their negligence.
Bradshaw fell into arrears with his storage payments and Spurling brought an action
to recover the monies due. The orange juice was spoiled and unusable, and
Bradshaw counterclaimed in negligence.
, Although it had not been proven that Spurling had been negligent, even if they had
been negligent, they would be able to rely on the exclusion clause to avoid liability.
Sufficient notice of the clause had been given so as to make it a term of the contract.
Exemption clauses will operate to protect a party only where he is carrying out his
contract and not where he is deviating from it in a fundamental respect.
The clause was part of the contract ‘by the course of business and conduct of the
parties’.
The course of conduct must be consistent:
McCutcheon v David MacBrayne (1964).
McCutheon delivered his car to the defendant shipping company for carriage from
the Hebrides to the mainland. The car was destroyed when the ship sank because of
the company’s negligence.
The company’s usual practice was to issue a risk note to customers exempting them
from liability for losses resulting from their negligence. McCutheon had signed such
notes on previous occasions but had never read the terms.
On this occasion, no such risk note was supplied, and McCutheon sought to recover
the value of his car.
McCutheon was successful in his claim. The clause had not been successfully
incorporated into the contract. McCutheon could not be bound by a clause on the
basis of a previous course of dealing when he did not have knowledge of the specific
term. Previous dealings are only capable of importing a term into a later contract
where actual or constructive knowledge of the terms is established, and the parties
assent to them.
The course of conduct must be regular:
Petrotrade Inc v Texaco Ltd (2002).
1(c) - through being given sufficient notice.
Has there been reasonably sufficient notice of the very existence of the terms?
The test is objective.
Thompson v LMS Railway (1903).
Thompson was unable to read and she travelled on a train with her daughter and
niece.
On the back of her ticket it was printed that the tickets were issued subject to the
terms outlined in the company’s time tables. The time tables contained a clause
purporting to exclude liability for any injuries to passengers, howsoever caused.
Thompson slipped and sustained injuries as a result of the company’s negligence,
and claimed damages.
Thompson was unsuccessful in her claim. It was irrelevant that she was unable to
read. The company had taken sufficient steps to bring the terms to customers’
attention in clear and legible print. Accepting the ticket for travel constituted
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