Exemption clauses
Table of Contents
Introduction ................................................................................................................................................. 2
Incorporations:........................................................................................................................................ 3
1.
Incorporation by signature: ........................................................................................................... 3
2.
Incorporation by notice: ................................................................................................................. 3
Forms of notice:................................................................................................................................... 3
Effect of the clause: ............................................................................................................................. 4
3.
Incorporation by course of dealing: .............................................................................................. 4
Contra proferentem rule ............................................................................................................................ 5
Special application of the contra proferentem rule ............................................................................. 5
Fundamental Breach of contract ............................................................................................................... 6
Conclusion: .................................................................................................................................................. 7
References ..................................................................................................................................................... 8
Introduction
In the case of a breach of the contract, an exemption clause is a contractual term in which one party
attempts to limit the scope of his contractual responsibilities or regulate the other party's claim to
damages or other alternative remedies. It also denotes that an exemption clause is a clause in a
contract that imposes limitations on the contracting parties. Exclusion clauses are another name
for the exemption clause. Following the industrial revolution, standard-form contracts resulted to
exemption and limitation clauses. Many injustices resulted as a due to the lack of equal negotiating
power between contracting parties, particularly consumers. Exemption clauses were given
common law protections and statutory controls by the courts.
Incorporations:
Incorporation by signature, incorporation by notice, and incorporation by previous course of
transactions are the three types of exemption clauses which exists. 1
1. Incorporation by signature:
As for a contract, if it has been signed at the time when the contract is made, certainly it’s terms
would be the contents of the document, whether it have been read and understood by the parties.
This principle was taken from the case of L’Estrange v Graucob (1934).2. However, the rule does
not apply where there is any misrepresentation as to the nature of the document signed. Thus, in
the case of Curtis v Chemical Cleaning and Dyeing Co (1951)3.
2. Incorporation by notice:
A document which is not signed, such as a ticket or notice, may contain an exclusion clause.
Therefore, the exclusion clause must be given adequate and sufficient notice in this case as the
court will not uphold an exclusion provision unless the party who is impacted by it is aware of its
existence or has been given adequate notice of it.4 Thus, in the case of Thornton V Shoe Lane
Parking (1877)5, the legal principle for incorporation by notice was made, which says that before
or after the time of contracting if a notice is being given, only then an exemption clause is to be
incorporated into the binding contract.
Forms of notice:
In order to avoid the inadequacy of the notice it should be given in these forms. They are:
1. The notice should be given in a word format in which the both parties would expect
the contractual terms to be contained instead of document that is to accept payments
like receipts. As in the case of Chapelton v Barry UDC (1940)6 , the Court of Appeal
held in favor of the claimant. The ticket was merely a receipt for the transaction. The
terms of the contract the parties’ agreed were those contained on the notice near the
pile of deck chairs. That notice contained no exclusion clause. The defendant was
therefore liable.
2. The notice also should be provided to the attention of the other party who is involved
in the contract before or at the particular time the contract was made and entered into.
1
All Answers ltd, 'Exemption Clause' (Lawteacher.net, May 2022) <https://www.lawteacher.net/free-lawessays/contract-law/exemption-clause.php?vref=1> accessed 8 May 2022
2 L’estrange v. F Graucob Ltd, 1934 K.B.2 394 (1934).
3 All Answers ltd, 'Curtis v Chemical Cleaning & Dyeing Co - 1951' (Lawteacher.net, May 2022)
<https://www.lawteacher.net/cases/curtis-v-chemical-cleaning-and-dyeing.php?vref=1> accessed 9 May
2022
4 All Answers ltd, 'Exclusion Clause in Contract Law' (Lawteacher.net, May 2022)
<https://www.lawteacher.net/free-law-essays/contract-law/exclusion-clause-term-in-acontract.php?vref=1> accessed 8 May 2022
5 Thornton v. Shoe Lane Parking Ltd, 1971 Q.B.2 163 (1971).
6 Chapelton Case, 1940 K.B.1 532 (1940).
For example, In Sugar v LMS Railway Co (1941)7, the ticket handed to a passenger
carried the words ‘For conditions see back’ on the front, but these were hidden by the
date stamp put on the ticket by the booking clerk. The court held that there had not been
sufficient notice to incorporate the conditions into the contract.
Effect of the clause:
In recent cases, it has been emphasized that the more unique or onerous a terminology is, the more
notice is required to adopt it. Clauses that are pretty different or onerous cannot be included merely
by handing over or showing a document containing the clause; the party wanting to incorporate
the clause must do so. To enforce the clause, specific measures must be taken to bring attention to
it. As a result of the case of Thornton case, even if the proprietor's actions were adequate to include
the more common terms eliminating or limiting liability for property damage, they may not be
considered to have given reasonable notice of the more unusual phrase relating to personal injury.
Also, the issue of the incorporation of unusual and onerous clauses was the subject of Interfoto
Picture Library v Stiletto Visual Programmes Ltd (1988).8 Regarding to this case, the legal
principle which says that the more different or onerous a particular term is, the degree of notice is
greater which is required to incorporate it.
The High Court emphasized in Kaye v Nu Skin UK Ltd (2009) 9 that the approach in Interfoto is
also being applied to commercial contracts and other contracts as well.
3. Incorporation by course of dealing:
An earlier consistent court of dealing between the parties and acquaintance with the other's terms
and trade may have to be used to incorporate a term into a contract. The case of Spurling v
Bradshaw (1956)10, can be referred as the outcome of this case was that despite the fact that
Spurling had not been found to be negligent, even if they had been, they would be able to avoid
liability by relying on the exclusion clause. The provision had been provided sufficient notice to
be considered a contract term. Exemption clauses will protect a party involved only when they are
carrying out their contract, not when they are straying from it fundamentally. Moreover, the case
of Hollier v Rambler Motors (1972)11 can also be referred as this case is the contrasting case in
which, despite the fact that on the occasion in question, no invoice had been signed, the defendants
claimed that the preceding course of dealing had imported this phrase into the contract. The Court
of Appeal dismissed this argument, determining that the previous practice of business was
insufficient to justify the inclusion of such a clause.
7
Sugar v. London, Midland and Scottish Railway Co, 1941 All E.R.1 172 (1941).
Interfoto Picture Library v. Stiletto Visual Programmes Ltd., 1 All E.R. 348 (1988).
9
Kaye v. Nu Skin UK Ltd, 2009 E.W.H.C. 3509 (2009).
10
Spurling v. Bradshaw, 1956 W.L.R.1 461 (Supreme Court 1956).
11
Hollier v. Rambler Motors Ltd., 2 Q.B. 71 (1972).
8
Contra proferentem rule
This contra proferentem rule is to be defined as when an excursion clause’s words are not clear,
they would be interpreted in a certain way that is less favorable to the party who is relying on it.
As in order to conceal the parties’ purpose, those who are seeking to exempt themselves from the
liability won’t usually use unclear or ambiguous words in order to conceal their purpose. In the
case of Houghton v Trafalgar Insurance Co (1954)12, this rule has been applied. As for this case
it is a case, revolved involving a five-seater vehicle who was involved in a car accident that was
carrying around six passengers at the time. The car's insurance policy excluded the insurer's
liability where an excessive 'load' was carried, but the Court of Appeal held that the term 'load'
should be interpreted narrowly, referring to the goods involved, rather than the people involved.
Thus, the clause failed to exclude the insurer’s liability as the car was carrying too many people
rather than too much weight.
Special application of the contra proferentem rule
When a party of the contract trusts on an exemption provision to protect them from liability for
negligence, the contra proferentem rule is enforced even more rigorously. Therefore, under the
Unfair Contract Terms Act 1977 (UCTA), several clauses that claim to relieve a party involved
from duty for negligence are ineffective, and even when liability for negligence can be excluded,
exceptionally plain terms must be used. It will be effective if a provision expressly refers to a term
that has the same meaning as negligence, or the word negligence itself. In the case of White V
John Warrick & Co Ltd (1953)13, The defendant rented a bicycle to the claimants. 'Nothing in this
agreement shall render the owners liable for any bodily injury,' the contract added. Mr. White was
hurt when the bike's saddle tilted forward as he was riding it. The defendants might have been held
guilty for both breach of contract and negligence for supplying the defective cycle. Because the
clause was vague, the contra proferentem rule was applied, according to the Court of Appeal.
When the phrase was interpreted in the least favorable way for the defendants, it indicated that it
solely applied to contractual liability; hence, the defendants were not protected if they were
deemed negligent in tort.
A contrasting case of this, is the case of Alderslade v Hendon Laundry Ltd (1945) 14 , where the
company which sells laundry things attempted to depend on a provision exempting them from
obligation for "lost or damaged" products supplied by the claimant for laundering. Because there
was no other way to interpret the text, the court decided that such a clause did protect them from
liability for negligence.
Furthermore, these exemption clauses do not apply where there are legislatives that implies
conditions unless the term ‘conditions’ is actually being used in the clause due to the conditions
being an important obligation which is to be not avoided. For example, The Sale of Goods Act in
12
Houghton v. Trafalgar Insurance Co Ltd, 1954 Q.B.1 247 (1954).
White v. John Warwick & Co Ltd, 1953 W.L.R.1 1285, 1953 All E.R.2 1021 (1953).
14
Alderslade v. Hendon Laundry Ltd, 1945 K.B. 189 (1945).
13
which the case of KG Bominflot Bunkergesellschaft v petroplus Marketing AG (2010) was
involved.
Fundamental Breach of contract
During the time of 1950s and 1960s, the courts established the precedent that no exclusion clause
could insulate a party from obligation for a particularly serious breach of contract, even if the
clause's wording plainly included the breach in issue. The House of Lords, however, rejected this
"doctrine of fundamental breach" in Suisse Atlantique Société d'Armement Maritime SA v NV
Rotterdamsche Kolen Centrale (1967).15 In this case it was obiter by the Lordships there was no
practical law rule that an exclusion clause may not ever absolve a party of obligation for such an
act of breach. Also, whether the interpretation of the contract language that covered the area of
breach in the question would always be a question to be asked about. Thus, this approach was
later confirmed in the case of Photo Production Ltd v Securicor Transport Ltd (1980).16
Furthermore, The House of Lords ruled that an exclusion clause could not be used to hide a
fundamental infringement of the law, and also noted that the Unfair Contract Terms Act 1977
had been passed since the Suisse Atlantique case, making sure that exemption clauses in
consumer contracts could not be freely applied. Their Lordships pointed out that under
commercial agreements, the parties are likely to have about equal negotiating power and be able
to ensure their own risks involved (as in this instance, where the action was actually being fought
to determine which of the parties' insurance companies should pay for the damage). As a result, a
notion of fundamental breach was unnecessary based on the circumstances of the case,
15
16
Suisse Atlantique Case, 1967 A.C.1 361 (1967).
Photo Productions Ltd v. Securicor, 1 All E.R. 556 (1980).
Conclusion:
In conclusion, the area of exemption clauses is widely spread in the area of law of contract. They are
implied to allocate the risks between the parties involved to a contract. Therefore, a clause which happens
to exclude all liability for certain breaches is called an exclusion clause. The ‘exemption clause’ term
itself is commonly used to cover both limitation and exclusion clauses. Mainly, there are three
incorporations which are, Incorporation by signature, by notice, and by a previous course of dealing. In
the incorporations by notice, there are two forms, which are needed to avoid the inadequacy of the notice.
First is that which is contained in contractual document the party would expect to find it rather than in a
document that is known to acknowledge payments. Second is that, brought to the other party’s attention
before or at the time the contract is entered into. Furthermore, if an exclusion clause's meaning is not
clear, the court will have to construe it contra proferentem, which would mean that it will be judged
against the party who entered it into the contract. There is special application for this rule. Lastly,
certainly there are fundamental breach of contract in most contracts.
References
Quinn, C. E. (2017). Contract law. United Kingdom: Pearson Education Limited.
Exclusion Clause in Contract Law (lawteacher.net)
https://www.saunders.co.uk/news/exemption-clause-incorporated-intocontract/#:~:text=An%20exemption%20clause%20is%20a,a%20possible%20breach%20of%20contract.
https://www.shiplawlog.com/2021/10/19/exemption-clauses-subject-to-contractual-interpretation/