Exclusion Clauses

Generally, exclusion clause can be defined as a declaration intended to limit one’s liability or seek using a clause to prevent him or her to involve in a law contract or any other event for protection. The usage of exclusion clause is to confine the other party rights in case any breach of contracts or negligence occurs. For instance, a party would like to limit their liability in case they breach the contract by adding in exclusion clause which tends to restrict the amount of the other party to request for certain compensation. For instance, ‘A company shall not be liable for any damage to or loss whatsoever and howsoever arising of goods left with us for cleaning’. This explanation too apply in Mahmud sued Sugar Supplies Ltd where Sugar Supplies Ltd deny their liability on a clause where ‘no warranty, express or implied, as to the quality product contracted for’ when they breach the contract where Mahmud received a poor quality of sugar instead of 6 crates of ‘high quality, fine grade’ sugar applies in the contract.

In this situation, in order for this exclusion clause to be effective, it is a matter that Mahmud realizes the existence of this clause. The first possibility might be Sugar Supplies Ltd had brought forward the attention of the clause to Mahmud in entering the contract where he is fully alert or merely understand about the existence of the clause. The second possibility might be where Mahmud is not acknowledge of the presence of this clause or Sugar Supplies Ltd might using some other methods in bringing this notice such as email or postbox which in result cause late receivable of this matter to Mahmud. As a result, both parties suffer from these consequences. Take for an example in Olley v Marlborough Court Ltd (1949) case, Mr. and Mrs. Olley book in a hotel to stay for a week. There was a notice stated in the bedroom that they will be not responsible for any lost or stolen unless their belongings were handed to the management for supervision. Unfortunately, Mrs. Olley furs had stolen by a stranger. The Olleys aware of the notice after contract was legally made in the reception desk. The Court of Appeal detained that the defendant was fully responsible for the Olleys lost and such exclusion clause could not help the defendant because it has not added into a contract with the Olleys. This situation reflects similarity with Mahmud v. Sugar Supplies Ltd where Mahmud had entered into a contract but the statement had not clearly stated that they had signed into a contract to make the exclusion legally enforceable.

To decide, the judges will based on both parties statement and the validness of the exclusion clause on incorporation where a person who rely on the exclusion clause for defense must show a valid contract or agreement that both parties had signed where is its presumed that both parties had understand fully the terms of contract for it to legally enforceable. Under the signed documents, there is a case which similarly applicable to Mahmud v. Sugar Supplies Ltd which is the case between L’Estrange v Graucob (1934). Miss L’Estrange bought an automatic cigarette vending machine for use in her cafe where she signed a ‘sales agreement which stated that the defendant is not responsible for any express or implied condition, statement or warranties statutory of the vending machine is not guarantee of . She was not alert that time that there is such a clause had stated in the contract. So, she sued the company for the damages but failed because it is presumed that she had read and understand the terms of contract and signed them. So this case is applicable to Mahmud v. Sugar Supplies Ltd because although Mahmud did not read the clause that had stated in the contract, but he is bound to it because he had signed in the contract and legally enforceable where there is no point for Mahmud to sue Sugar Supplies Ltd for breaching the contract.

Moreover, in Curtis v Chemical Cleaning and Dyeing Co (1951), Mrs. Curtis took her wedding dress to be cleansed by the defendants. Before that, she had signed on a ‘Receipt’ that they are excluding from the liability for damage to beads and sequins after being told by the assistant. The ‘Receipt’ stated that ‘any damage howsoever arising’ is not responsible by the company. The dress was badly stained when it was return to Mrs. Curtis. The assistant cannot run away from its liabilities from the damages caused because the defendant assistant fakes the scope of its explanation to Mrs. Curtis. The misrepresentation of statement too had happened in the case of Mahmud and Sugar Supplies Ltd because the misrepresentation of information sugar supplies causes Mahmud to sued Sugar Supplies Ltd for breaching the contract.

Moreover, some parties deal their business contract by using unsigned documents which means that a notice or a ticket might include some exclusion clause inside it and the clause is valid if both terms are link together. It is important that the document should be observed by a reasonable man as contractual in nature and as such likely to contain exclusion clause (Keenan & Riches, 1998). In the case of Thornton v Shoe Lane Parking Ltd (1971), Thornton drove his car into an automatic car parking lot and received a parking ticket. The parking ticket stated that Shoe Lane Parking Ltd will not responsible for any injury event occur in the premises. He was injured. Thornton was not aware of these conditions and sued the defendant. The court was in favors of Thornton as Shoe Lane Parking Ltd did not bring the attention of the clause to Thornton when he got the ticket. Judges implied that more notice should bring forward to their customer in such terms. Therefore, Shoe Lane Parking Ltd did not take the benefit of the exclusion clause. This implies too in the case where Sugar Supplies Ltd should bring forward the attention of the existing of the clause to Mahmud bakery to avoid any unnecessary inconveniences happened.

Furthermore, it is more likely that a party should have taken the priority to present and alert the existence of this clause to another party in the contract. It is stated by Denning LJ that more attention should be given if the clause is unlikely to be rational. The Court of Appeal had held the ‘red hand rule’ that every clause should be noted in red ink before the clause is to be presented in a valid form in a contract (Keenan & Riches, 1998). For a case, this has happened in the situation of Interfoto Picture Library v Stiletto Visual Programmes Ltd (1988). Defendant, an advertising agency had ordered 47 photographic transparencies from claimant. Upon receiving the transparencies, it is supplement with a delivery note which stated in the Condition 2 that 5 pounds per day was charged for keeping them after 14 days. However, the defendant did not return them on time and sued by the claimant upon late returnable of transparencies with an amount chargeable of 3,785 pounds. The court of appeal held that the Condition 2 was not stated in the contract and claimant had not taken the initiative to present such unjust terms to defendant attention. So, come back to Mahmud v. Sugar Supplies Ltd case, Sugar Supplies Ltd should highlighted such unreasonable clause to Mahmud attention in order for the exclusion clause in the contract to be applicable.

Besides that, both parties might have previous course of dealings. There is more likely an exclusion clause is valid although not stated into a contract where previous trading between both parties enables such terms to be set up. In J Spurling v Bradshaw (1956) case, the defendant delivered eight barrels of orange juice to the claimant. The defendant then received documents for the acknowledgement of receipt where it contain an exclusion clause to exclude the claimant liability from deficit and damages ‘due to negligence, wrongful act or default’. When the defendant collect the barrels, there to be found out that some of them are empty and contained dirty water. The defendant as a result refuses to pay for the storage fee and sued by the plaintiff. It is known that although the defendant did not receive the document containing exclusion clause, but the clause had been in included in the contract due to previous course of dealings years by both parties. The defendant received similar documents on their previous dealing years and the contract is bound to it (Keenan & Riches, 1998). Referring to Mahmud v. Sugar Supplies Ltd case, although Mahmud did not receive or notice the existence of the exclusion clause, but due to previous course of dealing years with Sugar Supplies Ltd, there is high chances that the clause is valid and Mahmud accuse was void because they had similar contract on previous dealings and now are bound by the terms contained in the contract.

Besides that, there might have some interpretation going on with this type of similar case which means that the courts will examined the content of the contract by its words whether the clause shows sign in breaching the contract and loss which has actually happened. The strict interpretation is one of the main regulation used by courts which means an exclusion clause exist to cover ones liability where a clause will eventually prevent ones liability for breach warranty but not on certain conditions. This was proven in the case of Andrews Bros Ltd v Singer & Co Ltd (1934). The claimant bought new Singer car from the defendant whom the clause implies in the contract that the defendants are not responsible for all conditions, warranties and liabilities implied by common law, statute or any other form prohibited. It was found that some of the Singer car was not brand new and sued by the claimants for damages incurred and breach of contract. The Court of Appeal in favors of claimants because defendants assure that those cars will be in new condition in the terms of contract. So, the defendants cannot rely on the exclusion clause for protection. This indicates similarity in Mahmud and Sugar Supplies Ltd case that Sugar Supplies Ltd agreed on a contract to supply ‘high quality, fine grade’ sugar which expressed in the term of contract which after that supply poor quality of sugar as a result being sued for breach of contract. So, Sugar Supplies Ltd cannot rely and benefit from the exclusion clause.

Moreover, another form of interpretation is contra proferentem which means that the court will examine the exclusion clause genuinely and opposed on the other party who inserted it in the contract where clear meaning of words for a person to exclude from the liability in negligence ( Keenan & Riches, 1998). In the case of White v. John Warwick & Co Ltd (1953), the claimant takes into service on hiring a tradesman cycle from defendants. In the agreement, it was stated that defendant will not be liable for any injury occurred during the occasion happened. Later, the claimant was injured due to the cycle of saddle tilted while cycling. The Court of Appeal held that the defendant was protected by the exclusion clause in term of liability but it will not exclude the responsibilities in negligence. In the Mahmud and Sugar Supplies Ltd case, it is in favor of Sugar Supplies Ltd that their liabilities had protected by the exclusion clause in the contract but not keeping out their responsibilities in terms of carelessness in supplying poor quality of sugar instead of ‘high quality, fine grade’ sugar.

In order to opposed the judiciary fight against exclusion clause, certain measures had been appointed in a contract by the permission of Court of Appeal by Lord Denning MR which is the doctrine fundamental of breach. The doctrine of fundamental breach stated that there are no exceptions for breach of contract which can help to protect a party legally responsible for a breach of contract except there is a valid and clear exclusion clause stated in a contract. However, in the English law, the statement was later then rejected by the House of Lord due to many questionnaire by other parties in the case of Suisse Atlantique Societe d’Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale Case (1966) where if there is to be found out violation of fundamental term establish, automatically the contract will be invalid . Then, later Rule of Law Doctrine established by Lord Denning MR mentioned that the breach of contract applies if the condition is met that goes through the origin of the contract after both parties had signed them (Keenan & Riches, 1998). After that, the Court of Appeal revitalizes the doctrine of fundamental breach due to unfair terms in using the exclusion clause. Nevertheless, the later appeal of House of Lords by Lord Wilberforce deemed to success in removing the Rule of Law Doctrine due to the case of Photo Productions Ltd v. Securicor Ltd (1980). This case mentioned that the defendant, which owns a security company provide a service to patrol their factory at nights and weekends for the claimants. Unfortunately, there is one night that a patrolman while patrolling lit up a fire in the factory and destroys the content inside the factory. The claimant sued for damages and it were estimate to be a total amount of 615,000 pounds. The defendants denied and using an exclusion clause which stated that they are not responsible for any injury or default occurred by employee except that there is an unusual act anticipated by the defendants. The claimant however did not claim that there is negligence occur for defendant in hiring the patrolman who lit the fire while patrolling. The House of Lords had decided that the defendants are protected by the exclusion clause as it was clear stated although the doctrine of fundamental breach had occurred. So, the exclusion clause is in favor of Sugar Supplies Ltd in the case of Mahmud v. Sugar Supplies Ltd case as the defendants were protected by the clear and stated exclusion clause that ‘no warranty, no warranty, express or implied, as to the quality product contracted for’ as affirmed in the contract.

In order to control the usage of exclusion clause, the Parliament had decided to slowly implement proper usage of exclusion clause in a specific contract. One of the progress had done by the Parliament is the Section 43(7) of the Transport Act 1962 stated that there is no exclusion clause shall be valid or prohibit from the liability of British Railways Board if any injury or death of passenger occur during the board. There is another example of statutory control which is the Occupiers’ Liability Act 1957, the Carriage of Goods by Sea Act 1971 and Defective Premises Act 1972 (Keenan & Riches, 1998). The Parliament introduced the Unfair Contract Terms Act 1977 to manage some of the unreasonable exclusion clause which applicable to most of the contracts and also enhance with the Unfair Terms in Consumer Contracts Regulations 1944 (Keenan & Riches, 1998). The Unfair Contract Terms Act (UCTA) 1977 legally enforceable in 1 February 1978. UCTA 1977 has two misleading in respect which first it affects the law of tort as well as contract law because it covers non-contractual notice and it does not deal with unfair terms in contracts, only unfair exemption clause (Keenan & Riches, 1998). For instance, Mahmud v. Sugar Supplies Ltd case where UCTA 1977 might help in dealing the unreasonable exclusion clause stated in the contract. In fact, UCTA 1977 deals mostly on transactions business liability. Businesses were assumed to be free into whatsoever contract as long both parties were agreed but UCTA too places number of limitation in the terms of business contract. It mentioned that exclusion clause tend to control in certain measurement as there are no keeping out of responsibilities in death, injuries, damages cause by negligence and for mediocre goods if it is sensible.

In addition, there are some guiding principles in the UCTA 1977 to know whether the following terms in the contract are practical or not. It is essential that other party knew the existence of the term, agree upon the term, had an opportunity of entering into a similar contract with other persons but without having to accept a similar term. It should also noted that the court’s powers under the Unfair Contract Terms Act 1977 are limited to declaring the limitation clause in question either to be reasonable or unreasonable where it is not allowed to rewrite an unreasonable clause to make it reasonable (Ali, 2005). In fact, the UCTA 1977 uses two techniques for controlling exclusion clause where some types of clause are stated to be ineffective, whereas others are subject to test of reasonableness (Abbott, Pendlebury and Wardman, 2002). If a person tend to use the exclusion clause to limit its liability or keep it out completely, the court regard with two factor that the resources available to meet the liability and extent to which insurance cover was available ( Keenan & Riches, 1998). Besides that, its reasonableness may be judged in the contract with exclusion clause stated on which goods are supplied. The limited of availability supplier arise will make some difficulties in rationalize an exclusion clause. It makes sense that an exclusion clause might valid when customer provides certain requirement on the goods they want from the supplier. This explained in the case of Mahmud v. Sugar Supplies Ltd in the contract that the exclusion clause may be valid and reasonable as Mahmud had ordered with detailed specification on their maybe a monopoly sugar supplies in the particular area that ‘6 crates of ‘high quality, fine grade’ sugar wanted.

In my opinion, the exclusion clause in the contract between Sugar Supplies Ltd and Mahmud is more likely to be applicable as both of the parties are clear and aware of this agreement that they understand the terms and risks before signing of this contract and any outcome occur should be their own responsibilities. It implies similarities to one of the case in L’Estrange v Graucob (1934) where most probably Mahmud is not alert enough and aware of such existence exclusion clauses. Such clauses arise are perfectly fair due to negotiations between both parties are equal, but there are high chances that such case are always inflict on a weaker party rather by a stronger party. It also might sound reasonable that Sugar Supplies Ltd should bring forward the attention of the clause to Mahmud but I think that it might not be Sugar Supplies Ltd fault because Mahmud should be aware and read them before entered into the contract.

References

Abbott, K., Pendlebury, N. and Wardman, K. 2002, Business Law, 7th ed., London, Thomson Learning.

Ali, I. 2005, ‘Reasonableness under the Unfair Contract Terms Act 1977′, online, lawdit.co.uk, 10th August. Available from:

http://www.lawdit.co.uk/reading_room/room/view_article.asp?name=../articles/Reasonableness%20under%20UCTA.htm

[Accessed: 6th February 2010]

Keenan, D. and Riches, S. 1998, BUSINESS LAW, 5th ed., London, Financial Times, Pitman Publishing.