Exemption Clauses
An exclusion clause will only be effective to limit the liability of the party seeking to
rely upon it if two matters are satisfied:
 the exclusion clause must form part of the contract; and if it does
 the exclusion clause must be wide enough to cover the breach or the even that
has occurred.
Does the clause cover the breach?
The general rule is that an exemption clause is determined by construing the clause
according to its natural and ordinary meaning, read in light of the contract as a whole
(Darlington Futures Ltd v Delco Australia Pty Ltd).
There are also a number of rules of construction the courts use to assist in interpreting
an exemption clause:
Contra Proferentem
The clause is read contra proferentem if there is an ambiguity. This means that where
there is an ambiguity, the clause will be read strictly against the party trying to rely
upon it (Akerib v Booth). The exclusion clause will only provide protection if it
clearly and unambiguously states the situations in which it will operate.
Negligence
In the case of purported exclusion of negligence, the clause should be interpreted in
accordance with the three rules set out it Canada Steamship Lines Ltd v The King:
 An express exclusion is effective. For example, where an exclusion clause
states ‘The operator will not be liable for any loss or injury arising from
his or her negligence’, this may be effective to exclude an action in
negligence (specific reference to negligence may be required) (Smith v
South Wales Switchgear Co Ltd).
 Where the only possible cause of action against the defendant is an action
for damages in negligence, the court will interpret a wide clause to cover
the defendant’s liability for negligence. For example, where such as
‘howsoever caused’ or ‘whatever the cause’, these terms have been held to
be wide enough to cover negligence (Rutter v Palmer).
 Where the cause of action may be based on some ground other than
negligence (that is, breach of contract) a ‘wide’ clause must be confined to
the heads other than negligence (that is, the breach of contract) (White v
John Warwick Ltd).
Four Corners Rule
The four corners rule. This rule requires that the exclusion clause will only cover a
breach that has occurred within the scope of the contract. An act which was not
authorized by the contract may not be covered by the exclusion clause (Council of the
city of Sydney v West).