exemption clauses

Question 1

incorporation of the term within the contract

Answer 1

term may be incorporated by

• signature

Question 2

what are exemption clauses?

Answer 2

Clauses which seek to exclude or limit a party’s liability under a contract upon the occurrence of pre specified events

in order to rely on a clause the party must show
- the clause is a term of the contract
- property construed covers the loss or damage which occurred

Question 3

signature

Answer 3

if a person signs a contractual document is bound by its terms, eve if he has not bothered to read it

L’Estrange v. Graucob [1934]
The claimant purchased a cigarette vending machine for use in her cafe. She signed an order form which stated in small print ‘Any express or implied, condition,
statement of warranty, statutory or otherwise is expressly excluded’. The vending machine did not work and the claimant sought to reject it under the Sale of Goods Act for not being of merchantable quality.

Held: In signing the order form she was bound by all the terms contained in the form
irrespective of whether she had read the form or not. Consequently her claim was
unsuccessful.
3

Question 4

notice

Answer 4

if the contractual document is not signed but is nevertheless set out or referred to in a document which is handed to the other party or displayed at the place the contract is made, it will become incorporated into the contract only if reasonable notice of the clause is bought to the attention of the person to be adversely affected by it

Question 5

nature of the document

Answer 5

an exemption clause will not form part of the contract if it is contained in a document which was not intended to have contractual effect.

However, a document will be regarded as contractual if a reasonable man would have known that it was intended should it have that effect

Here is a concise 5-point summary of Chapelton v Barry UDC (1940):

The claimant hired a deck chair from Barry Urban District Council and received a ticket, which he did not read.

The ticket contained an exclusion clause excluding liability for personal injury.

The claimant was injured when the deck chair collapsed due to faulty fabric.

The court held that the ticket was merely a receipt, not a contractual document containing terms.

The exclusion clause was not incorporated into the contract because the contract was formed when the chair was taken, and new terms could not be introduced afterward.

Question 6

degree of notice given

Answer 6

the party seeking the exemption clause need not show that he bought it to the notice of the other party, but only that he took reasonable steps to bring it to his attention. Merely handing a ticket to the other party with the clause on is rarely enough, since the person may not be aware of the contractual effect of the ticket.

A further factor in assessing whether reasonable notice of a
term has been drawn to the other party’s attention is that
the more unexpected or unusual a term is, the higher the
degree of notice needed to incorporate the term into the
contract. In such cases simply handing over the contract
containing the clause is not enough; the person relying on
the clause must make it conspicuous, and draw the terms
to the attention of the party who will be adversely affected
by the clause.

Question 7

parker vs south eastern railway

Answer 7

Here is a clear 6-point summary of Parker v South Eastern Railway Co:

Parker deposited his bag in the railway cloakroom and received a ticket.

A notice in the cloakroom and on the ticket stated the railway would not be liable for items worth more than £10.

Parker’s bag exceeded £10 in value and was lost.

Parker argued he had not read the ticket and believed it was merely a receipt, so the exclusion clause should not bind him.

The railway argued that a person can be bound by contractual terms even if they have not read them, provided reasonable notice was given.

The Court of Appeal ordered a retrial, holding that Parker would be bound if he knew there was writing containing terms on the ticket and the railway had taken reasonable steps to bring those terms to his notice.

Question 8

time the notice was given

Answer 8

an exemption clause will become a term of the contract only if reasonable steps are taken to bring it to the notice of the other party before or at the time of contracting

Olley v. Marlborough Court Ltd [1949]
The claimant booked into a hotel. The contract was made at the reception desk
where there was no mention of an exclusion clause. In the hotel room on the
back of the door a notice sought to exclude liability of the hotel proprietors for
any lost, stolen or damaged property. The claimant had her fur coat stolen.
Held: The notice was ineffective. The contract had already been made by the time
the claimant had seen the notice. It did not therefore form part of the contract.

Question 9

previous dealings

Answer 9

it is possible for the courts to infer notice where there has been a previous course of dealing between the parties in which the terms have been incorporated by signature or notice

Here is a concise summary of J Spurling Ltd v Bradshaw:

Bradshaw regularly stored goods at Spurling’s warehouse and signed invoices containing an exclusion clause.

The invoices were signed after the goods were delivered, meaning they were issued after the contract was formed.

On one occasion, barrels of orange juice were returned damaged or contaminated.

Bradshaw refused to pay the storage charges, arguing the exclusion clause was not incorporated because it was provided after the contract was made.

The Court of Appeal held that, due to the parties’ consistent previous dealings, the exclusion clause was incorporated into the contract.

Denning LJ famously stated that particularly onerous clauses must be brought to attention with greater notice — sometimes referred to as the “red hand rule.”

Question 10

common law rules relating to interpretation of exclusion causes

Answer 10

The contra proferentum rule

This rule states that in the event of ambiguity, an exemption clause is read against the interests of the party seeking to rely on it

Baldry v. Marshall [1925]
The contract for the sale of a car expressly excluded “any other guarantee or
warranty, statutory or otherwise”. This did not exclude liability for breach of a
condition

Question 11

negligence

Answer 11

An important aspect of the contra proferentum rule is that very clear words are required to
exclude liability for negligence, since the courts regard it as unlikely that a person would consent to the other party absolving himself from such liability by virtue of the contract. If the clause expressly refers to negligence, or if the clause is wide enough to cover negligence
(EG the clause exempts a party ‘from all liability whatsoever’). There is no problem. But difficulties arise if the terminology does not refer clearly to negligence, or is ambiguous.

Generally speaking, the contra proferentum rule is applied, and unless the clause clearly excludes
liability for negligence, the clause is incorporated in such a way as to protect the party relying
on the clause in respect of liability in contract only.

White v. John Warwick and Co. Ltd [1953]
The plaintiff hired a bicycle from the defendants. When he was out riding it, the saddle tipped
forward injuring him. The contract of hire stated “nothing in this agreement shall render the
owners liable for personal injury”.
It was held that the term was ambiguous and that whilst the defendant would normally have
been liable in both contract and tort, the clause excluded liability only for breach of contract.
The defendants were, therefore, liable in the tort of negligence.
If the words are found to be very unclear, any exemption clause will not prevent a person being
liable in negligence even if this could be the only possible grounds of liability

Question 12

hollier vs rambler motors

Answer 12

The claimant had used the services of the defendant garage on 3-4 occasions over a five year period. Each time
he had been asked to sign a document excluding liability for any damage. On this occasion the contract
was made over the phone and no reference to the exclusion clause was made. The garage damaged the car
during the repair work and sought to invoke the exclusion clause through previous dealings.

Held:
There was not a sufficient number of or regularity of transactions to amount to a previous course of
dealings capable of incorporating the exclusion clause. It was not reasonable to expect the claimant to
remember the clause from one transaction to the next. Consequently the garage was liable to pay for the
damage.