Introduction
An
exclusion is a clause in contract which purports to exclude liability
altogether or to restrict it by limiting damages or by imposing other onerous
conditions.
Exclusion
clauses can operate oppressively. As a result, the law restricts their use to
protect a party to a contract. The protection comes from common law and
legislation.
Protection at common law
The
courts protect consumers from the harsher effects of
exclusions clauses by;
- requiring exclusion clauses to be incorporated into the contract before they have legal effect.
- interpreting the exclusion clauses strictly
a) Incorporation of exclusion clauses
The
party wishing to rely on the exclusion clause must show that it formed part of
the contract. Where there is uncertainty, the clause must be excluded from the
contract. An exclusion clause will be deemed to be incorporated in a contract in any of the
following is proven;
- the document containing notice of the clause is part of the contract i.e. is a contractual document;
- the contractual document containing the clause is signed; or
- the other party has notice or was sufficiently aware of the term before entering into the contract.
i) Contractual documents
Where
the exclusion clause is contained in an unsigned document it must be shown that
the document is an integral part of the contract and is one which would be
expected to contain the term.
In Chapelton v Barry UDC
there was a pile of deck chairs and a notice
stating 'Hire of chairs 2d per session of three hours'. The claimant
took two chairs, paid for them and received two tickets which were headed
'receipt' which
he put in his pocket. One of the chairs collapsed and he was injured. The
defendant council relied on a notice on the back of the tickets by which it
disclaimed liability for injury.
It was held that the notice advertising chairs for hire gave no
warning of limiting conditions and it was not reasonable to communicate them on
a receipt. The disclaimer of liability was not binding on the claimant.
In Thompson v LMS Railway, an elderly lady who
could not read asked her niece to buy her a railway excursion ticket on which was printed
'Excursion: for conditions see back'. On the back it was stated that the ticket
was issued
subject to conditions contained in the company's timetables. These conditions
excluded liability for injury.
It was held that the conditions had been adequately communicated and
therefore had been accepted.
Where
a term is particularly unusual and onerous it should be highlighted. Failure to
do so may mean that it does not become incorporated into the contract.
ii) Signed document/contracts
If
a person signs a document containing a term, he is held to have agreed to the
term even if he had not read the document.
L'Estrange
v F Graucob Ltd [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. It was
held that 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.
Nevertheless,
a signed document can be rendered wholly or partly ineffective if the other
party made a misrepresentation
Curtis
v Chemical Cleaning;
the claimant took her wedding dress to
the cleaners. She was asked to sign a form. She asked the
assistant what she was signing and the assistant told her that it excluded liability
for any damage to beads and sequins. The form in fact contained a clause
excluding all liability for any damage howsoever caused. The dress was returned
badly stained. Held: The assistant had misrepresented the effect of the clause
and therefore could not rely on the clause in the form even though the claimant
had signed it.
iii) Notices or unsigned documents
An
exclusion clause may be contained in an unsigned document. In that case,
reasonable and sufficient notice of
the existence of the clause should be given.
Olley
v Marlborough Court [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.
Therefore,
the existence of the exclusion clause must be brought to the notice of the
other party before or at the time the contract is entered into.
iv) Previous dealings
An exception to the rule that there
should be prior notice of the term is where parties have had consistent
dealings with each other in the past, and the documents used then
contained similar terms.
Spurling
v Bradshaw [1956]
1 WLR 461; The
defendant used the services of a warehouse to store goods on a
regular basis. Each time he delivered goods to the warehouse he was asked to
sign an invoice which contained an exclusion clause. This invoice came after
the contract had been agreed. On one occasion he stored some barrels of orange
juice and again signed the invoice. When he went to pick them up, however, some
of the barrels were empty and one contained dirty water. Consequently he
refused to pay for the storage. The claimant warehouse owners brought an action
for the agreed price of storage relying on the exclusion clause to demonstrate
that they were not liable for the damage to the goods. The defendant argued the
clause had not been incorporated into the contract as he signed the document
after the contract was made.
Held:
The clause was incorporated through previous dealings. The defendant would have
been aware of the term from the previous contracts and therefore it did form
part of the contract. The claimant was entitled to payment and the defendant
had no right to claim compensation for the damage to the orange juice.
The
previous dealings must have been consistent; the parties must always have
contracted on the same terms. If the parties have had previous dealings (but
not on a consistent basis), then the person to be bound by the term must be
sufficiently aware of kit at the time of making the contract.
Hollier
v Rambler Motors [1972]; 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.
b) Interpretation of exclusion clauses
Once
it is established that an exclusion clause is incorporated, the clause will be
interpreted to see whether the clause covers the breach that has occured. In
interpreting the clause, the court will be guided by the contra proferendum rule, main purpose rule and the doctrine of
fundamental breach.
i) Contra proferendum
If
there is any ambiguity or uncertainty as to the meaning of the exclusion
clause, the court will interpret it against the party who inserted it in the
contract.
Baldry v Marshall [1925]: The plaintiff asked the defendants, who were motor dealers, to supply a car that would be suitable for touring purposes. The defendants recommended a Bugatti, which the plaintiff bought. The written contract excluded the defendant's liability for any "guarantee or warranty, statutory or otherwise". The car turned out to be unsuitable for the plaintiff's purposes, so he rejected it and sued to recover what he had paid. 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.
A clause can therefore be interpreted in
the narrower sense against the party who inserted it in the contract.
Accordingly, if a party wishes to exclude or limit liability for loss caused by
negligence, the courts require that the word ‘negligence’, or accepted synonym
for it, should be included in the clause.
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