EXCLUSION CLAUSES

EXCLUSION CLAUSES

1.

LEARNING OBJECTIVES :

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.
.

The aim of this topic is to enable students to:

Understand the effects of exclusion clauses
Identify the various types of exclusion clauses
Whether it can be enforced by the court in excluding
liabilities

2.

LEARNING OUTCOME

.
.

A successful student will be able to;

Explain the effects of exclusion clauses
Describe the various types of exclusion clauses

Introduction
1.

What is an Exclusion Clause?

An exclusion clause is a term in a contract that seeks to restrict the

rights of the parties to the contract.

One can almost expect that in every standard contract, exclusion clauses
are intentionally included to exempt the party who drew up the standard
contract from certain liabilities.

Exclusion clauses are enforceable in the court of law ie valid

However fundamental breach of contract can not be exempted under

Exclusion Clauses

An exemption clause is a term in a contract which tries to exclude, or limit,

the liability of a party in breach of the agreement.

TYPES OF EXCLUSION CLAUSES

1.

True exclusion clause: The clause recognises a potential breach of

contract, and then excuses liability for the breach. Alternatively, the clause
is constructed in such a way it only includes reasonable care to perform
duties on one of the parties.

2.

Limitation clause: The clause faces a limit on the amount that can be
claimed for a breach of contract, regardless of the actual loss.

The parties agree that any action in relation to an alleged breach of this
Agreement shall be
commenced within one year of the date of the breach, without regard to the date
the breach
is discovered. Any action not brought within that one year time period shall be
barred,
without regard to any other limitations period set forth by law or statute.
Time is of the essence for the completion of the work described in this contract. It
is anticipated by the parties that all work described herein will be
completed within two (2) weeks of the date of execution, and that any
delay in the completion of the work described herein shall constitute a
material breach of this contract.
The subcontractor agrees to indemnify and hold harmless the contractor
against loss or threatened loss or expense by reason of the liability or
potential liability of the contractor for or arising out of any claims for
damages.

1.

Time limitation: The clause states that an action for a claim

must be commenced within a certain period of time or the
cause of action becomes extinguished.

INCORPORATION OF
EXCLUSION CLAUSE
INTO THE CONTRACT

Before one can rely on an exclusion clause to bring an action, parties must first
make sure that the exclusion clause has been incorporated into the contract. There
are three ways in which such a term maybe inserted into a contractual agreement.
1. Signature
If a person signs a contractual agreement, then they are bound by its terms, even if
they did not read it.
LEstrange v Graucob (1934)
Facts: The plaintiff had signed a contract of sale without reading it.
Held: The court held that she was bound by the terms which contained an exception
clause.
This rule may be avoided where the party seeking to rely on the exclusion clause
misled the other party into signing the contract.

Curtis v Chemical Cleaning and Dyeing Co (1951)

Facts: The plaintiff signed a receipt when she took a dress to be cleaned, on being told that it
was to protect the cleaners in case of damage to the sequins. In fact, the clause excluded
liability for all damage.
Held: that the cleaners were not protected for damage to the dress, the extent of the clause had
been misrepresented and therefore the cleaners could not rely on it.

2. Notice
In order for notice to be adequate, the document bearing the exclusion clause must be an
integral part of the contract, and given at the time the contract is made. The
recipient must have had reasonable notice of them.
Chapleton v Barry UDC (1940)
Facts: On hiring a deck chair, the plaintiff was given a ticket with only a large black 3d on the
face of the ticket, and exclusion clauses on the back.
Held: The defendants could not rely on the exclusion clauses as it was not apparent on the face
of it that the ticket was a contractual document, rather than just a receipt.

Olley v Malborough Court Ltd (1949)

Facts: Mr. And Mrs. Olley saw a notice on the hotel bedroom wall which stated the
proprietors will not hold themselves responsible for articles lost or stolen, unless
handed to manageress for safe-keeping.
Held: The contract had been entered into on registration, and the clause was therefore
not incorporated into the contract and could not protect the proprietors.
The greater the exemption, the greater the degree of notice required.
Thornton v Shoe Lane Parking Ltd (1971)
Facts: The plaintiff made his contract with the car company when he inserted a coin in
the ticket machine. The ticket was issued afterwards, and in any case referred to
conditions displayed inside the car park which he could see only after entry.
Held: Notice therefore came too late.

3. Custom
Previous dealings on the basis of an exemption clause may include the clause in later
contracts.
Spurling v Bradshaw(1956)
Facts: Bradshaw deposited some orange juice in Spurlings warehouse. The contractual
document excluding liability for loss or damage was not sent to Bradshaw until several days
after the contract.
Held: that the exclusion clause was valid, as the parties had always done business with each
other on this basis.
However, actual knowledge of the exclusion clause is required.
Hollier v Rambler Motors (1972)
Held: That bringing a car to be serviced or repaired at the garage on 3 or 4 occasions over a
period of 5 years did not constitute a course of dealing.

UDICIAL CONTROL OF EC
EC has to be controlled so that;
It would not have unfair effects on any parties to a contract
Make the parties to a contract be answerable and accountable for major /serious damages
There are 3 judicial controls of EC
1.Strict Literal Interpretation
.For an exclusion clause to operate, it must cover the breach If there is, then the type of liability arising is also
important.
.Generally, there are two varieties of liability;
Strict liability (liability arising due to a state of affairs without the party at breach necessarily being at fault) and
Fault liability ( liability in negligence)
.The courts require the party relying on the clause to have drafted it properly so that it exempts them from the
liability arising, and if any ambiguity is present, the courts usually interpret it strictly against the party relying on
the clause.
.The judge in R & B Custom Brokers Co. Ltd. v United Dominions Trust Ltd. refused to allow an exemption
clause, of which did not cover the nature of the implied term on the grounds that it did not make specific and
explicit reference to that term.

EXAMPLES OF
UNCLEAR &
AMBIGUOUS
EXCLUSION
CLAUSES

2.

Contra Proferentum Rule

. Contra proferentum is a rule which provides that an ambiguous term will be construed
against the party who imposed it. The interpretation will therefore favor the party that did
not insist on its inclusion.
. The rule applies at the insistence of one party without negotiating with the counter-party.
. Additionally, the rule applies only if a court determines the term to be ambiguous, which
often forms the substance of a contractual dispute.
. The reasoning behind this rule is to encourage the drafter of a contract to be as clear and
explicit as possible and to take into account as many foreseeable situations as it can.

3. Statutory Control
. Even if terms are incorporated into the contract and so would be effective, there are
various statutory controls over the types of terms that may have legal effect. The Unfair
Contract Terms Act 1977 renders many exemption clauses ineffective. The Unfair Terms
in Consumer Contracts Regulations 1999 provide further protection for consumers.

TUTORIAL QUESTION
1. Explain how an exclusion clause may be incorporated into a contract.
( 25 marks)

2. Giovanni enters a car-park in his new sports car. As he does so, he has to take a ticket
from a machine and a barrier is raised before he is able to drive into the car-park. He parks
the car and puts the ticket safely in his wallet because he will need it when he leaves the
car-park, but does not read it. The ticket clearly states that cars are parked according to
the terms and conditions displayed in the office at the exit to the car-park. The terms and
conditions state that cars are parked entirely at the risk of their owners.
Discuss the contractual liability that the owners of the car-park would have towards
Giovanni if he was to return to his car to find that it had been deliberately damaged by a
gang of youths.
( 25 marks)