Exemption Clauses - Lecture notes 10 PDF

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Ailsa Craig Fishing Co. Ltd v Malvern Fishing Co. Ltd. [1983] 1WLR 964HoL.
D2 agreed to provide security services for D1’s fishing boats in harbour. Due to d2’s negligence a boat owned by C sank. C sued D1 who sued d2. In the contract between D1 &D2 there was a clause stating liability was lim...

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EXEMPTION CLAUSES What is an exemption clause? 

A type of express clause that limits or excludes liability

Photo Production Ltd v Securicor Transport Ltd (1980) 2 WLR 283 D provided security patrolman. He lit a fire inside the factory and it burnt down. In the contract was a clause exempting any liability for “ any injurious act or default by any employee” unless it was avoidable. Activity: exclusion clause HELD- the parties are negotiating at arms length, and have set out who should bear the risks, the courts should be unwilling to interfere.

Ailsa Craig Fishing Co. Ltd v Malvern Fishing Co. Ltd. [1983] 1WLR 964HoL. D2 agreed to provide security services for D1’s fishing boats in harbour. Due to d2’s negligence a boat owned by C sank. C sued D1 who sued d2. In the contract between D1 &D2 there was a clause stating liability was limited to £1000. D1’s loss was £55,000 Activity: Was this an exclusion clause or limitation clause? And what was held Held -The court held that the clause was not an exclusion clause but a limitation clause and that it was valid. It was observed that the courts are less hostile to such clauses than they are to exclusion clauses, and therefore make less effort to interpret them in ways which strain the language of the clause in order to achieve a measure of justice. “One must not strive to create ambiguities by strained construction, as I think the

appellants have striven to do. The relevant words must be given, if possible, their natural, plain meaning. Clauses of limitation are not regarded by the courts with the same hostility as clauses of exclusion.”

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Because of their potentially prejudicial effect there are stringent common law rules and statutory rules controlling such clauses

COMMON LAW RULES  Incorporation  Construction  Other Rules INCORPORATION The clause must be part of the contract By Signature

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Signed Documents; the clause has been incorporated regardless of whether the party signing read it (L’Estrange v Graucob (1934) 2 KB 394) L bought an automatic cigarette vending machine. The contract contained a term excluding all implied terms. The machine did not work properly. L had signed the contract but not read it. Activity: Was the contract & exclusion clause binding? Yes

Held-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.

- This case however must now be read in conjunction with the later case of Thornton v Shoe Lane Parking (1971)- The claimant was injured in a car park partly due to the defendant's negligence. The claimant was given a ticket on entering the car park after putting money into a machine. The ticket stated the contract of parking was subject to terms and conditions which were displayed on the inside of the car park. One of the terms excluded liability for personal injuries arising through negligence. The question for the court was whether the term was incorporated into the contract ie had the defendant brought it to the attention of the claimant before or at the time the contract was made. This question depended upon where the offer and acceptance took place in relation to the machine.

Held-The machine itself constituted the offer. The acceptance was by putting the money into the machine. The ticket was dispensed after the acceptance took place and therefore the clause was not incorporated into the contract.

Interfoto Picture Library v Stiletto (1987)- The claimants ran a photo library the defendant was in advertising. The claimants advanced some transparencies to the defendant for his perusal and he was to get back to them as to which photos he would like to use. The package of the photos contained a document stating that if any transparencies were kept longer than 14 days a £5 +VAT holding fee would be charged per photo per day. The defendant had not read this document and then forgot about the transparencies and failed to return them for 6 weeks. The claimants brought an action claiming a holding fee of £23,783 as specified in the contract. Held- The term was not incorporated into the contract. Where a term is particularly onerous the person seeking to rely on the term must take greater measures to bring it to the attention of the other party.

and the statutory restrictions of the UCTA 1977 and the Unfair Terms in Consumer Contract Regulations 1999 and Consumer Rights Act 2015

a) Nature of document A document which includes an exclusion clause must be a Contractual Document.

Chapleton v Barry UDC (1940) 1 KB 532 On hiring a deck chair C received a ticket excluding liability for negligence. The chair collapsed and injured C who had not read the ticket. Activity: Was the exclusion clause part of the contract? No

Chapelton’s appeal was successful. The ticket was held to be a receipt and the conditions by which BUDC were held to have offered the chairs for hire were those contained in the notice, and the notice did not contain any exclusion clause. BUDC had not, therefore, brought Chapelton’s attention to the clause and they could not rely on it.

Grogan v Robin Meredith Plant Hire Ltd [1996]- The claimant, Grogan, was an employee of the defendant’s, Robin Meredith Plant Hire, and had signed an employment contract with them. The defendant required that the claimant use and sign a timesheet, upon which they had printed additional terms, which were intended to incorporate terms by reference. The defendant attempted to assert that these additional terms ought be binding upon employees, whilst the claimant counter-claimed that as one would not reasonably expect for contractual terms to be found on a timesheet, they ought not be deemed a binding contractual promise that varied the original employment contract. Held-Auld LJ stated that a timesheet was more appropriately termed an administrative document than a contractual one, and thus the average reasonable person would not expect that any conditions stated on it are contractual in nature. Rather, timesheets serve as an administrative record of the performance of an already existent obligation by a party. Thus, despite that the timesheet was a formal document containing the signatures of both parties, Courts ought to also have consideration for the circumstances of and intentions regarding the document in determining whether it ought be legally binding. - In this case a time sheet was not a Contractual Document but purely administrative O’Brien v MGN Ltd [2001] EWCA Civ 1279- Mr O’Brien participated in a newspaper scratch card game and satisfied the criteria to win £50,000. The newspaper intended there to be one or two winners per week but due to an administrative mistake, some 1472 entrants met the criteria and claimed the prize. The rules of the competition were not published in the newspaper every day and they included a provision whereby if there was more than one winner, a prize draw would be held to decide who got the prize. Mr O’Brien brought an action to recover £50,000. Held- Mr O’Brien’s claim was unsuccessful. The contractual rules had been successfully incorporated into the agreement by reference on the day he purchased the paper and entered the competition. The paper had taken sufficient steps to being the rules to the attention of entrants and the rules relating to the prize draw were not particularly unusual or outlandish. b) Degree of Notice i)

Reasonable notice must be given

Parker v SE Railway (1877) 2 CPD 416 C left a bag at the left luggage office and was given a receipt. On the front of the ticket it said “see back”. On the back was a clause limiting liability. D lost bag and value claimed by C exceeded amount in the limitation clause. At first instance the judge said the question was whether C read or was obliged to read the notice. The CoA said the question was whether reasonable notice was given and ordered a new trial

Thompson v LM&S Railway (1930) 1 KB 41 C was given an excursion ticket which said it was subject to conditions on the timetable. There was a clause excluding liability for injury. C could not read and was injured. Activity: Was reasonable notice of the clause given? Yes

Hel dLor dHar nwor t hMRs t at edt hat ,r egar dl es sofwhet herMr sThomps oncoul d r ead,s hewasboundbyt hec ont r act ,andt hei ndi cat i onoff ur t hercondi t i onsby r ef er enc ewass uffic i entnot i c e.Hesai d‘ wef eel nodi fficul t yi nc omi ngt oa c oncl us i on. ’ i)

The party relying on the clause needs to prove that it was drawn to the other party’s attention or that he took reasonable steps to do so. The more onerous or unusual the clause, the more is required for the steps to be sufficient to constitute reasonable notice.

Thor nt onvShoeLanePar ki ng[ 1971]2QB163 Interfoto Picture Library v Stiletto Visual Programmes (1988) 1 All ER 34 Richard Steamship Co v Rowntree (1894) AC 217 Spurling v Bradshaw (1956) 1 WLR 461

AEG (UK) Ltd v Logic Resourse Ltd [1996] CLC 265 - where a minority view criticised the ‘Red Hand Rule’ in the Thornton case. Ocean Chemical Transport Inc v ExnorCraggs Ltd [2000] 1 AER 519 CA O’Brien v MGN Ltd [2001] EWCA Civ 1279 c)Time of Notice Notification of the clause must take place at the latest at the time the contract is made.

Olley v Marlborough Court (1949) 1 KB 532 C booked into a hotel. There was a notice in the bedroom excluding liability for loss/theft of goods from the room. A thief stole Mrs O’s furs having gained access to the room. Activity: Was notice of the clause given before the contract was made? No

l eywass ucc es s f uli nherc l ai m andr ec ov er edt hec os toft hes t ol eni t emsi n Held- Ol t hei rent i r et y .Theex c l us i onc l aus ehadnotbeens uc c es s f ul l yi nc or por at edi nt ot he c ont r ac tbec aus et hecont r ac twasc onc l udedatr ec ept i on,andt henot i c epur por t i ngt o ex c l udel i abi l i t ywasnotv i s i bl eunt i laf t ert hecont r ac twasf or med,whent hegues t ent er edt hebedr oom

Thornton v Shoe Lane Parking d) Internet Contracts A Supplier will need to ensure that the customer had reasonable notice of applicable terms and conditions before contracting. Normally this will be achieved by requiring the customer to click on an icon to signal agreement to terms and conditions which are displayed. By Course of Dealing If there has been a course of dealing, notification may have taken place on a prior occasion: Spurling v Bradshaw McCutcheon v MacBrayne (1964) 1 WLR 125 McS arranged transport by ferry of C’s car on D’s ferry. There was an exclusion clause at D’s offices and on receipt. In addition a risk note was signed. The clauses had never been read and on this occasion no note was signed though it had been on previous occasions but not every time. Activity: Was reasonable notice of the clause given? No Was there incorporation by previous course of dealings? heonwass ucc essf ul i nhi sc l ai m.Thecl ausehadnotbeensucces sf ul l y Held- McCut i ncor por at edi nt ot hecont r act .Mc Cut heoncoul dnotbeboundbyacl auseont hebasi sofa pr evi ouscour seofdeal i ngwhenhedi dnothav eknowl edgeoft hespeci fict er m.Pr evi ous deal i ngsar eonl yc apabl eofi mpor t i ngat er mi nt oal at ercont r ac twher eact ual orcons t r uct i v e k nowl edgeoft het er msi sest abl i s hed,andt hepar t i esassentt ot hem.

British Crane Hire Corporation v Ipswich Plant Hire [1975] QB 303 PetrotradeInc v Texaco Ltd [2000] CLC 1, 341 But there must be evidence of a CONSISTENT course of dealings. Hollier v Rambler Motors (1972) QB 71 Activity: What were the facts & decision in the above case and what did the case establish about the issue of consistent course of dealings? Hollier had his car repaired by the defendant garage three or four times over a period of five years. On at least two of these occasions he had signed a form which stated the garage were exempted from liability for damage caused by fire on their premises. Hollier had not read the form. On this occasion there was an oral agreement for the repairs to be conducted, and Hollier had not signed a form. His car was damaged by fire and Hollier claimed in negligence.

Held- Hollier was successful in his claim. Three or four occasions in five years was insufficient to amount to a course of dealing and the exclusion clause had not, therefore, been imported into the oral contract. Even if the clause had been so imported, the language used was not so plain as to clearly exclude the garage from liability for its own negligence. The case "illustrates the courts' reluctance to permit the exclusion of liability of negligence." The court also held that "a customer could understand the clause to mean that the defendants were not liable for a fire caused without their negligence.”The court also held that three or four transactions over a five year period were not enough to incorporate an exemption clause into the consumer contract

CONSTRUCTION 

It is for the party relying on the clause to prove it covers the situation

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The courts when construing such clauses will construe any ambiguities against the party seeking to rely on the clause in question –the Contra Proferentem Rule.

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The clause will be construed against the party seeking to rely upon it

Baldry v Marshall (1925) 1 KB 260. Buyer bought a car from a dealer. B said he wanted a car “suitable for touring” and was sold a Buggatti. There was a clause excluding all guarantees and warranties. The car was not a type suitable for touring. Activity: What was held?

The Court of Appeal held that the requirement that the car be suitable for touring was a condition. Since the clause did not exclude liability for breach of a condition, the plaintiff was not bound by it.

Beck & Co v Szymanowski& Co [1924] AC 43 Andrews Bros. (Bournemouth) Ltd v Singer & Co [1934] 1KB 

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If the clause purports to exclude/limit liability for a negligent act it is strictly construed White v John Warwick & Co Ltd (1953) 2 All ER 1021

C hired a bike from D. There was a clause saying the owners were not liable for personal injury. The seat tipped up whilst C was riding the bike and caused injury. Activity: What was held?

TheCour tofAppealhel dt hatt heambi guouswor di ngoutoft hee x c l us i onc l aus ewoul d effec t i v el ypr ot ec tt hedef endant sf r om t hei rs t r i c tc ont r ac t uall i abi l i t y ,buti twoul dnot ex emptt hem f r om l i abi l i t yi nnegl i genc e

Hollier v Rambler Motors (1972) QB 71 Bishop v Bonham [1988] 1 WLR 742 Monarch Airlines v London Luton Airport Ltd [1997] CLC 698 Stent Foundations Ltd v Gleeson plc [2001] BLR 134 Macquarie International Investments Ltd v Glencore (UK) Ltd [2008] EWCH 1716 (Comm) Activity: In light of the above cases is it easier to exclude liability for negligence in commercial cases ?

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See also earlier notes on terms and their construction

Exclusion Clauses and fundamental breach Photo Productions Ltd v Securicor Transport Ltd. (1980) AC 827 A contract for provision of security services by Securicor at the Claimant’s factory. The

security guard’s negligence caused the destruction of the claimant’s factory by fire. The contract contained a clause excluded liability for negligence of Securicor’s workers. The House of Lords held that the doctrine of fundamental breach was not relevant here, and that the case was a matter of construction of the contract. The exclusion clause did on the facts, cover the damage in question and therefore Securicor were not liable for the damage.

George Mitchell (Chesterhall) Ltd v Finney Lock Seeds [1983] 2 AC 803 The Claimant farmer George Mitchell purchased 30lb of Cabbage seed from the defendants for £192. The claimant planted the seed over 63 Acres and spent many hours of labour on the crops. The cabbage seeds only produced a small green leaf plant not fit for human consumption. The contract contained a clause which limited liability to the price of the seeds. The claimant had lost £60,000 + interest on the defective seeds. It was held that the exclusion did extend to the seeds sold to and used by the claimant, and that to claim otherwise would torture the language of the contract. However, it was also observed that on the facts this was an unfair term which could be struck down under the Unfair Contract Terms Act 1977. The court concurred with Lord Denning MR’s dissent in the Court of Appeal (in what was his Lordship’s final judgement), that the Act had now liberated the courts from needing to twist the words of contracts in this way in order to achieve justice.

Activity: With reference to the above cases, is there a doctrine of fundamental breach meaning that liability for a fundamental breach of contract cannot be excluded? OTHER RULES  Misrepresentation Curtis v Chemical Cleaning & Dyeing Co Ltd (1951) 1 QB 805 C took wedding dress for dry cleaning and signed a document exempting D from any liability. Before signing, C asked D about the meaning of the clause and was told it only excluded liability for beads and sequins. C signed. The dress was stained. Activity: Was the exclusion clause effective? &What was held

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.

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Inconsistent oral promise Third Parties

Adler v Dickson (1955) 1 QB 58

New Zealand Shipping Co Ltd v Satterthwaite (1975) AC 154 Contract (Rights of Third Parties) Act1999

STATUTORY RULES 

Unfair Contract Terms Act 1977

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(Unfair Terms in Consumer Contract Regulations 1999 – until 1/10/15)

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Consumer Rights Act 2015

UNFAIR CONTRACT TERMS ACT 1977 (B2B) 

Was the main statutory control but after 1/10/15 relevant for business to business contracts only. Business to consumer contracts dealt with by Consumer Rights Act 2015. It does not replace the common law rules but is additional to them

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The title to the act is misleading as it only deals with exclusion/limitation clauses and not all unfair contract terms.

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it deals with liability arising in both Contract and Tort.

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The Act only applies to actions in Contract and Tort arising from business liability. o Sl(3) i.e. at least one party must be entering into the contract in the course of business o S. 14 - Pr e CRA The actpr i nc i pal l y pr ot ec t ed t hos e deal i ng as a c onsumer o

A business could have been treated as a consumer

o R&B Customs Brokers Co Ltd v United Dominion Trust Ltd (1988) 1 All ER 847 A freight forwarding company bought a car from D for its directors. It was only 2nd or 3rd time in 5 years company had bought a car. An exclusion clause excluded s.14 implied terms. S.6 UCTA 1977 prevents exclusion of implied terms in a consumer contract. Activity: What was decided in the case?

Held- It was held that in this instance the Claimant had entered into the contract as consumer. In order for the transaction to have been in the course of business for the purposes of s.12(1) (a) of the Unfair Contract Terms Act 1977, the a...