Exclusion Clauses - Summary PDF

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Exclusion Clauses “Exclusion clauses … aim to reduce or exclude a party’s liability for conduct that would otherwise be in breach of contract or constitute a tort, such as negligence… in commercial contracts between businesses of equal size and experience, upholding exclusion clauses might be justified as consistent with the principle of freedom to contract… standard form contracts involve[e] a substantial degree of inequality of bargaining power between the parties [such as those involving] consumers or large and small businesses.” - Paterson, Robertson, Duke, Principles of Contract Law (Thomas Reuters, 5th ed, 2016) 147. Legislative restrictions -

There is legislation in place to prevent misuse of exclusion clauses

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Australian Consumer Law – regulation of exclusion clauses for supply of goods and services by traders to consumers

Common law approach If not regulated by legislation, whether an exclusion clause reduces/excludes liability is determined by three questions: 1) Whether or not the exclusion clause was properly incorporated into the contract 2) Whether the person seeking to rely on the protection of the clause was a party to the contract 3) Whether, as a matter of construction, the clause applies to exclude or reduce liability in dispute Does the clause apply, exclude or reduce the liability in dispute? -

The exclusion clause is to be construed “according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity” o

Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 

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Nissho Iwai Australia Ltd v Malaysian International Shipping Corp, Berhad (1989) 167 CLR 219 

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Contract between futures broker (appellant) and client (respondent), broker engaged in trading in a way not authorised by the client, incurring substantial losses. Sought to rely on two exclusion clauses excluding liability for “loss arising out of any trading activity undertaken on behalf of the client” (did not protect A, referred to work done with the client’s authority) and limiting liability for “any claim arising out of or in connection with the relationship established by this agreement” (successful, although transaction unauthorised it still arose in connection with the relationship)

Approved Darlington

Contra proferentem (rule of last resort) – if words in a clause are ambiguous/capable of more than one meaning, the clause can be construed strictly against interest of the proferens (the party seeking to rely on the clause)

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Other principles of strict construction o

For concerns about scope of broad exclusion clauses, English courts require any excluded events to be exceedingly clearly expressed, and have rules precluding parties from relying on exclusion clauses for fundamental breaches of contract (but this approach has been rejected in the view that legislation reduces need for common law principles)

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Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, 843 – judicial intervention limits freedom to contract, legislation has intention of “leaving parties free to apportion the risks as they see fit”

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Sydney City Council v West (1965) 114 CLR 481, 488, 489 – exclusion clauses should be analysed according to ordinary principles of construction

Four corners rule – courts historically unwilling to construe exclusion clause as excluding liability for acts not authorised by (Sydney City v West) or outside of “four corners”/main object of the contract. o

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Wallis, Son & Wells v Pratt & Haynes [1911] AC 394 – exclusion clause did not exclude liability for breaches of terms that were classified as conditions within the contract (as that would contradict the contract)

Nissho Iwai Australia Ltd v Malaysian International Shipping Corp, Berhad (1989) 167 CLR 219 – clearly worded exclusion clause may apply to exclude liability, even for events occurring in circumstances that would defeat the main purpose of the contract

Negligence – exclusion clauses in general but expansive language (e.g. for losses “howsoever caused”) may be sufficient to exclude negligence — general words may be sufficient if negligence is the only basis on which the plaintiff is liable o

Courts traditionally took view that a party wanting to absolve the other for consequences was inherently improbable, to the effect that clear words are necessary to exclude liability for negligence

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Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 – scope of exclusion clause determined per its natural and ordinary meaning in the context and per the object of the contract as a whole – clause expressed in general but expansive language (e.g. “howsoever caused”) may be sufficient

Deliberate breach – courts tend to require clear words before construing an exclusion clause as excluding liability for a clear breach, but clearly worded clause may have this effect...