A Case Involving the Exemption Clause

According to Keith Abbott (2007), he mentioned that exemption clause can be defined as a term used in a contract to exempt one of the parties from liability, or used to limit the liability to a specific sum if certain events occur, for example breach of warranty, negligence or theft of goods. It is used to protect the consumer as well as the seller from being liable in a certain events that occurred that caused losses to either party. Besides, it is also known as an advance notice to acknowledge the customer to avoid the liability of the seller of any unpleasant events occurred. In many cases, an exemption clause may turn out to be a term of contract by signature or notice to secure the seller or the company from being responsible for any losses. For example, a person is considered as liable if he signed on a contract that contains exemption clause which excludes all liabilities of the seller even if he did not read it. Besides, a person cannot be held liable even when he signed on the agreement if the term was misrepresented by the seller. An exemption clause must not be signed for it to be effective only if it is known to the public regarding this term or reasonable steps are taken to acknowledge the users on this term before the contract is made.

Moreover, a greater effort to attract the attention of the users is required if the term carries an important message regarding the effects of the exemption clause. An exemption clause will only be accepted when it is clearly stated and represented clearly to the customers in verbal or written format. If the parties have had long and consistent dealings, the clause is said to have effect even if usual steps to incorporate it were not taken. Exemption clause are said to help the seller to avoid liability if any unpleasant incidents happened unwillingly. However, the court worries that some parties will violated the benefits of the exemption clause. There are several limitations on the use of this exemption clause. To ensure this exemption clause has brings benefits to the public, the court has to consider between the principle that the parties should have complete freedom in making their own terms that protect their rights and the need to protect the public welfare from being signed on any unfair exemption clauses that violated the consumer rights. In order to maintain the fairness and effectiveness of this exemption clause, the court has came out with the Unfair Contract Terms Act 1977 that protects the parties from any unreasonable and unfair exemption clause. This Act mainly uses two basic techniques in controlling the use of exemption clauses by considering the clause to be ineffective or reasonableness in an agreement.

In this discussion, it is understood that Mahmud is taking legal action against Sugar Supplies Ltd for the breach of contract by providing very poor quality of sugar that is unsuitable for him to run his bakery business. However, Sugar Supplies Ltd argued that they have already signed an agreement which exclude all liability which stated ‘Sugar Supplies Ltd does not give any warranty, express or implied, as to the quality of the product contracted for’. However, there are many incomplete details in this discussion which assumptions must be made to illustrate the situation by assuming that between Mahmud and Sugar Supplies Ltd, they’ve signed on a written agreement which is legally enforceable and to assume that the agreement carries misrepresentation on the quality of the sugar. Moreover, Mahmud did not read carefully on the agreement regarding all the terms and conditions applied within the contract. Besides, it is assumed that Sugar Supplies Ltd is not aware of the quality stated by Mahmud in the agreement. Moreover, assumptions such as Mahmud has not brought to the attention of Sugar Supplies Ltd regarding the importance of the sugar quality stated. Also, it is being assumed that Mahmud has just verbally inform Sugar Supplies Ltd for the high quality, fine grade sugar and it is not written in the agreement. Lastly, it is being assumed that Mahmud has been a regular customer to Sugar Supplies Ltd along his bakery business.

Based on the assumption saying that Mahmud and Sugar Supplies Ltd have signed on a written agreement where both agreed on the terms and conditions stated in the contract, but the exclusion clause is written in ‘small print’ which eventually lead to the unawareness of Mahmud regarding the exclusion clauses made by Sugar Supplies Ltd. However, the law says that when an agreement is signed, the parties that involved are said to be bound to the contract regardless either of the party had read all the terms and conditions. For example, this had happened in L’estrange v Graucob (1943), the claimant who owned a café, bought a cigarette vending machine from the defendant. She signed on a sales agreement without reading the ‘small print’. Therefore, when the machine was defective, the vendor was being protected by the exemption clause that excludes the vendor from being liable even when the owner of the café claimed that she had not read the small print in the agreement that contained exclusion clause. Therefore, although Mahmud had not read the small print exclusion clause, but he had signed on the agreement that proved that he had agreed on all the terms and conditions offered and applied, so the exclusion clause is said to be effective and valid in this contract.

Besides, it is assumed that within that transaction, there was misrepresentation between Mahmud and Sugar Supplies Ltd regarding the quality demanded and the quality supplied. When Mahmud first approached Sugar Supplies Ltd, he requested for a lower grade of sugar, however, later he changed his mind by requesting for a high quality, fine grade sugar, but when they came into contract, the changes had not been effective and it was still written lower grade sugar which misrepresentation happened along the process as Mahmud made several changes towards the quality of sugar requested and it confused the Sugar Supplies Ltd. For example, in Curtis v Chemical Cleaning Co. (1951), the claimant took a white satin wedding dress, trimmed with beads and sequins to the cleaners. The shop assistant approached her and gave her a form to sign, and when the claimant asked on the contents of the agreement, the shop assistant says it is to exclude the liabilities of the shop if the beads and sequins were damaged. The claimant then signed on the agreement which actually meant to exclude the shop from all liabilities. When the dress was returned, it was badly stained. The shop is trying to rely on the exemption clause which the claimant has signed on earlier but it was held that the exemption clause in the agreement takes no effect as the shop assistant has misrepresented the effect of the form. Mahmud had misrepresented the sugar quality requested. Therefore, Sugar Supplies Ltd is not liable for this issue and the exclusion clause is valid and effective.

Moreover, it is being assumed that the Sugar Supplies Ltd is not aware of the quality requested by Mahmud. When Mahmud made an order of 6 crates of sugar, he did not state clearly what kind of sugar quality requested. Besides, based on this assumption, we also assumed that Sugar Supplies Ltd and Mahmud has been business partner for several deals and they understand fairly well on the behaviour of each other. Usually, Mahmud would make an order of 6 crates lower quality sugar for his bakery business. However, for this specific transaction, Mahmud made an exceptional request of 6 crates of high quality fine grade sugar as he wanted to improve his products’ quality. When he made the order, he did not clearly inform Sugar Supplies Ltd for the quality requested. Therefore, based on Sugar Supplies Ltd past experience, they assumed that Mahmud would still wants the ordinary 6 crates of lower quality sugar. For example, in Olley v Marlborough Court (1949), the claimant checked in at the defendant’s hotel for a stay. When the claimant went to her room, she saw a note on the wall stating that the hotel will not be responsible for articles lost or stolen unless they were taken care under the reception for safe keeping. However, when the claimant found out about this, she had already left some furs in the bedroom and closed the self-locking door and let the reception to hold her key. As a result, the furs were stolen. The court decided that the exclusion clause is not effective as the contract was completed at the front desk and the notice in the bedroom came too late to be incorporated into the contract. As for Mahmud’s case, he never made clear of his order and of no choice, Sugar Supplies Ltd had to make the order based on past experience they had with Mahmud. Mahmud never provides sufficient information and his information came too late for the Sugar Supplies Ltd to incorporate with the orders. Therefore, the exclusion clause is valid and effective which exclude all liability of Sugar Supplies Ltd towards Mahmud.

Additionally, it is being assumed that Mahmud had not raise the attention of the requested sugar quality to Sugar Supplies Ltd. This had lead to the delivery mistakes as Mahmud did not make clear of the quality he demanded at the first stage when they are reaching an agreement. Besides, it is also being assumed that Mahmud is making a special request to buy an extraordinary purchase of high quality fine grade sugar from Sugar Supplies Ltd which they had not encounter before. Therefore, in this situation, Mahmud should raise to the attention of Sugar Supplies Ltd that he is purchasing high quality fine grade sugar and ensure that Sugar Supplies Ltd are fully aware of the special request made. For example, in Interfoto Picture Library v Stiletto Visual Programmes (1988), the defendant, an advertising agency had hired 47 transparencies from the claimant. The transparencies arrived with a delivery note stating the specific date of return. Besides, the delivery note also contained nine small printed terms and conditions which the defendant never read. One of the conditions stated that if the transparencies were not able to return on the specific date, late charges of £5 per transparency per day would be fined. The defendant returned the transparencies 14 days later than the specific date and was informed to pay the late charges of £3,500. The court decided that the claimant claimed of £3,500 is not valid as the clause imposed an unusual exorbitant charge and they had not taken effective steps to raise the attention of the defendant regarding the late charges. As compared to this case, since Mahmud is making an extraordinary purchase where Sugar Supplies Ltd had not encounter before, Mahmud should raise sufficient attention of Sugar Supplies Ltd regarding the special purchase of high quality fine grade sugar. Therefore, the exclusion clause is valid and Sugar Supplies Ltd is not liable for the delivery mistake.

Besides, it is being assumed that the deal is done verbally and not written in any form of contract or agreement and they only relying on an unsigned document such as invoice. When Mahmud and Sugar Supplies Ltd agreed on a deal, Sugar Supplies Ltd gave Mahmud an invoice regarding the purchase of 6 crates of sugar without the clear description of the quality demanded and at the back of the invoice were several small print that exclude liability of Sugar Supplies Ltd which one of it stated that Sugar Supplies Ltd does not give any warranty, express or implied, as to the quality of the product contracted for. However, Mahmud did not read the exclusion clause. When the sugar is delivered, Mahmud blamed Sugar Supplies Ltd for the unmatched delivery. For instance, in Chapelton v Barry UDC (1940), there was a pile of deckchairs and a notice stating that ‘hire of chairs 2d per session of 3 hours.’ The claimant took two chairs and received two tickets after paying them. One of the chairs collapsed and he was injured. The defendant tried to exclude all liability by relying on the notice behind the tickets where it excludes all liability for injury. The court then decided that the defendant was liable as no warning was given to warn and acknowledge the user regarding the exclusion clause at the back of the ticket. However, in the other case of Thompson v LMS Railway (1930), an illiterate elderly woman asked her niece to buy her a railway excursion ticket which was printed ‘Excursion. For conditions see back.’ On the back, it was clearly stated that the ticket was issued subject to the conditions contained in the company’s schedules. These conditions excluded the liability for injury. The court decided that sufficient step was taken to acknowledge the consumer regarding the liability therefore it was accepted. In this discussion, the exclusion clause behind the invoice had not bring sufficient information for Mahmud to be aware of the excluded liability of Sugar Supplies Ltd. Therefore, the exclusion clause set by Sugar Supplies Ltd is said to be invalid and ineffective as it does not precaution the consumer regarding the excluded liability of the unmatched quality being delivered.

Moreover, it is being assumed that Mahmud has been a regular customer of Sugar Supplies Ltd for high quality fine grade sugar. They have had always bound into contract of certain amount of sugar monthly where both agreed and signed on the agreement on the terms and conditions where one of the conditions include ‘Sugar Supplies Ltd does not give any warranty, express or implied, as to the quality of the product contracted for’. However, for this particular incident, Mahmud did not sign on the agreement. For example, in Hollier v Rambler Motors (1972), on most of the time of five years, Mr. Hollier had had repairs done at the garage. On all occasions, Mr. Hollier were given a form to sign which exclude all liability of the garage for damage caused by fire to customers’ cars. However, on the recent occasion, Mr. Hollier did not sign on the form and the car got damaged by fire caused by negligence of garage employees. The garage denies the liability as Mr. Hollier was a regular customer, therefore, he was aware of the exclusion of all liability even he did not sign it. However, the court decided that the garage is liable for the compensation as it showed that there was insufficient of evidence showing that Mr. Hollier is completely aware of the exclusion clause even if he was a regular customer. In this discussion, it is then clear that as a regular customer, Mahmud did not signed on the contract that exclude all liability of Sugar Supplies Ltd, therefore, it has insufficient evidence to prove that Mahmud for this particular purchase is aware of the exclusion clause that exclude liability of Sugar Supplies Ltd for the quality of the product contracted for. Therefore, it is said that Sugar Supplies Ltd most likely to be liable for the exchange and the compensation for the unmatched delivery.

As a conclusion, based on all the findings and discussion, the Sugar Supplies Ltd is said to be most likely to be not liable for the delivery mistake as it is basically caused by Mahmud during the process of making an order. However, this was just based on certain assumptions as insufficient of information was given for this discussion. Exclusion clause is to protect a certain party from being violated the rights and to exclude most of the liability and mistakes caused by unpredictable incidents, however, fundamental breach of contract is an additional weapon to bring fairness to the public in case certain party used exclusion clause to protect themselves from liability for a serious or fundamental breach of contract.