lecture 7b - exclusion class

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Lecture 7BLecture 7B

EXCLUSION CLAUSESEXCLUSION CLAUSESEXCLUSION CLAUSESEXCLUSION CLAUSESEXCLUSION CLAUSESEXCLUSION CLAUSESEXCLUSION CLAUSESEXCLUSION CLAUSES

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Exclusion and Limiting Clauses

A clause may be inserted into a contract which aims to

excludeexclude or limitlimit one party's liability for breach of contract ornegligence. However, the party may only rely on such a

clause if :

(a) it has been incorporatedincorporated into the contract

(b) as a matter ofinterpretationinterpretation, it extends to the loss

in question. Its validity will then be tested under(c) the Unfair Contract Terms Act 1977Unfair Contract Terms Act 1977 and

(d) the Unfair Terms in Consumer ContractsUnfair Terms in Consumer Contracts

Regulations 1999Regulations 1999.2

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The person wishing to rely on the exclusion

clause must show that it formed partpart of thecontract. An exclusion clause can be

A. INCORPORATION

(1) Signature

(2) Notice

(3) a course of dealing.

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A. INCORPORATION

1. SIGNED DOCUMENTSIf the plaintiff signs a document having contractual

effect containing an exclusion clause, it will

,

bound by its terms. This is so even if he has not read

the document and regardless of whether he

understands it or not.

Case example :

L'Estrange v Graucob [1934] 2 KB 394.4

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However, even a signed document

can be rendered wholly or partly

ineffective if the other party has

A. INCORPORATION

made a misrepresentationmisrepresentation as to its

effect.

Case example:

Curtis v Chemical Cleaning Co [1951] 1 KB 805.

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2. UNSIGNED DOCUMENTS

The exclusion clause may be containedcontained in

an unsigned document such as a ticket orticket or

A. INCORPORATION

a noticea notice. In such a case, reasonable andsufficient notice of the existence of the

exclusion clause should be given. For thisrequirement to be satisfied:

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2. UNSIGNED DOCUMENTS Contd

(i) The clause must be contained in acontractual documentcontractual document, i.e. one which the

A. INCORPORATION

contractual terms, and not in a documentwhich merely acknowledges payment such as areceipt.

Case examples :

Parker v SE Railway Co (1877)

Chappleton v Barry UDC [1940]7

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2. UNSIGNED DOCUMENTS Contd

(ii) The existence of the exclusion clausemust be brought to the noticenotice of the

A. INCORPORATION

o er par y e ore or a e me ee ore or a e me econtract is entered into.contract is entered into.

Case example:

Olley v Marlborough Court [1949]

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2. UNSIGNED DOCUMENTS Contd

(iii) Reasonably sufficient noticesufficient notice of the

clause must be given. It should be

A. INCORPORATION

noted that reasonable, not actualnot actualnoticenotice is required.

Case example:Thompson v LMS Railway [1930]

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2. UNSIGNED DOCUMENTS Contd

What is reasonable is a question of fact depending on all thecircumstances and the situation of the parties. The courts have

repeatedly held that attention should be drawn to the

A. INCORPORATION

any document delivered to the plaintiff, eg "For conditions, see

back". It seems that the degree of notice required may increase

according to the gravity or unusualness of the clause in

question.Case examples:

Thornton v Shoe Lane Parking [1971]

Interfoto v Stiletto Ltd [1988]10

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3. PREVIOUS DEALINGS

Even where there has been insufficient notice,

an exclusion clause may nevertheless be

A. INCORPORATION

incorporated where there has been a previousconsistent course of dealing between the

parties on the same terms.

Contrast:

Spurling v Bradshaw [1956]

McCutcheon v MacBrayne [1964]

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3. PREVIOUS DEALINGS contd

As against a private consumer, aaconsiderable number of past transactionsconsiderable number of past transactions

A. INCORPORATION

may e requ re .may e requ re .

Case example:Hollier v Rambler Motors [1972]

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3. PREVIOUS DEALINGS contd

Even if there is no course of dealing, anexclusion clause may still become part of

A. INCORPORATION

e con rac roug ra e usage orroug ra e usage orcustom.custom.

Case example:

British Crane Hire v Ipswich Plant Hire [1974]

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4. PRIVITY OF CONTRACTAs a result of the doctrine of privity of contract, thecourts held that a person who is not a party to thecontract (a third party) was not protected by an

A. INCORPORATION

exclusion clause in that contract, even if the clausepurported to extend to him. Employees are regardedin this context as third parties.

Case example:

Adler v Dickinson [1954]

Scruttons v Midland Silicones [1962]

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5. COLLATERAL CONTRACTS

Even where an exclusion clause has been

incorporated into a contract, it may notit may not

A. INCORPORATION

have been incorporated in a collateralhave been incorporated in a collateralcontract.contract.

Case example:

Andrews v Hopkinson [1957]

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6. THE BATTLE OF THE FORMSA problem arises if one party sends a form saying that

the contract is made on those terms but the secondsecond

A. INCORPORATION

on and stating that the contract is on the second

party's terms. The "rule of thumb" here is that thethe

contract will be made on the last set of terms sencontract will be made on the last set of terms sent.

Case example:

British Road Services v Arthur Crutchley Ltd [1968]16

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Once it is established that an exclusion

clause is incorporated, the whole contractthe whole contract

will be construed (will be construed (ieie, interpreted) to see, interpreted) to see

B. INTERPRETATION

w et er t e c ause covers t e reac t atw et er t e c ause covers t e reac t athas occurredhas occurred. The basic approach is that

liability can only be excluded by clear

words. The main rules of construction are

as follows:

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(1) CONTRA PROFERENTEM

If there is any ambiguity or uncertainty as toany ambiguity or uncertainty as to

the meaning of an exclusion clause the courtthe meaning of an exclusion clause the court

B.INTERPRETATION

w cons rue con raw cons rue con ra pro eren empro eren em, .e. aga nsthe party who inserted it in the contract.

Case examples:

Baldry v Marshall [1925]

Houghton v Trafalgar Insurance Co (1954)

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CONTRA PROFERENTEM contd

Very clear wordsVery clear words are needed in

B. INTERPRETATION

for negligence.

Case example:

White v John Warwick [1953]

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2. THE MAIN PURPOSE RULEUnder this rule, a court can strike outcan strike out an

B. INTERPRETATION

with or repugnant (objectionable) to the

main purpose of the contract.

Case examples:

Glynn v Margetson [1893]

Evans Ltd v Andrea Merzario Ltd [1976]20

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3. THE DOCTRINE OF FUNDAMENTAL BREACH

There used to be some doubt on how far an exclusion clause could

exclude liability in a case where the breach of contract was

aa failure to perform the contract altogetherfailure to perform the contract altogether ( a fundamental( a fundamental

B. INTERPRETATION

breach).breach). In the case given below the House of Lords overruledsome earlier decisions of the Court of appeal and so the legal

position is now reasonable clear.

Case example:

Photo Productions v Securicor Transport 1980

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