Exemption Clause

INTRODUCTION

An exemption clause is a contractual term by which one party attempts to cut down either the scope of his contractual duties or regulate the other parties right to damages or other possible remedies for breach of contract. It means that the exemption clause is a phrase in an agreement that give a limitation towards contracting parties. The exemption clause generally is called as exclusion clauses as well.

There are three types of exemption clauses which are incorporation by signature, incorporation by notice and incorporation by previous course of dealings. In incorporation by signature, it includes a clause written on a document that all the parties have signed. Besides that, in incorporation by notice, it includes an exclusion clause if the person relying on a contract took a rational measure to draw notice in order to attract other parties’ attention. In incorporation by previous course of dealings, it is practically use words. It means that, this incorporation involve a course of dealings between the parties were depends on the facts incorporated by a contract.

The interpretation of exemption clause also includes a Contra Preferendum Rule (CPR), which means if the exemption clause is not clearly worded, the courts will appeal to CPR to the party relying on the exemption clause to explain on the not clearly worded exemption clause failing which the party relying must accept the entire responsibility.

Based on the case of study, the situation of exemption clause can be seen in a notice board that stated ‘The management shall not be liable for any damage to the car parked in the car park’. John who own a car in the parking lots was very disbelief that his car being knocked by some unknown vehicle which had costs his car damaged during the time he left his car at the time of appointment. John has approach the car park attendant for explanation but the car park attendant told John to read the car park ticket as well as the notice boards. John argued that the exclusion clause is not clearly worded which applied the Contra Preferendum Rule (CPR). He want to sue the car park due to the exclusion clause is not clearly worded.

EFFECT OF EXEMPTION CLAUSES IN ATTEMPTING TO EXCLUDE CONTRACTUAL LIABILITY

Exemption clause excludes liability

Sometimes, a party to a contract will include exemption clause to exclude or limit his liability in the event of a breach of contract. For example, the management of a company may include exemption clause such as “ The management shall not be liable for any death or personal injuries caused by any act, negligence, careless, reckless of omission by the employee, servants, agents whomsoever” in a contract.

Exemption clause doesn’t give a freedom of contract

This is because there is a term or condition attached to the contract which restricts the rights of the parties to the contract. Exemption clause allow the benefit to the buyer to be limited or even completely excluded, by agreement between the parties. In practice, this allow an economically stronger seller to get an economically weaker buyer to agree to a term or terms implied for the benefit of the buyer.

Exemption clause doesn’t give inequality of bargain

This might be a problem if one party is, for example, a big company, and the other is an ordinary customer. The parties have unequal bargaining power, so the stronger party might be able to take advantage of the weaker party.

Exemption clause only protects the defendants

Sometimes it is unfair as defendants companies only rely on exemption clauses to limit its liability in the event of something going wrong. For example when a party to a contract wishes to limit their liability in the event that they breach the contract they will usually include an exclusion clause, limiting the amount that the other side can claimed to a specified total. They operate for the benefit of one party to an agreement, usually the defendant even though the incident happened due to the negligence of the defendant.

Exemption clause evades liability on contract and tort (civil wrong)

CASE LAW

Thornton v Shoe Lane Parking (1971)

This case (Thornton v Shoe Lane Parking [1971] 1 All ER 686) demonstrates that for an Exclusion clause to be incorporated into a contract, other than by explicit agreement, the affected party must be given adequate warning. Mr Thornton parked his car in a commercial car park. The car park did display a sign to the effect that cars were parked at the owner’s risk. As it happens it was Mr Thornton that was injured, not the car. The car park’s terms of business were printed on the back of the ticket issued from the ticket dispenser but, it was ruled, this did not form part of the contract as the contract was concluded before the ticket was issued. The notice on the building was deemed insufficiently precise to allow a disclaimer of liability for injury. This case was one of many in which Lord Justice ` I-hate-exclusion-clauses’ Denning used the rules of incorporation to defeat exclusion clauses that mitigated against consumers. These days such technical manoeuvres would be unncessary, as a contract term disclaiming liability for personal injury would be deemed void under the UnfairContractTermsAct1977.

Olley v Marlborough Court (1949)

This case (Olley v Marlborough Court [1949] 1KB 532) demonstrates how an Exclusion clause that is not explicitly written into a contract cannot be upheld unless the party it acts against had adequate notice.

Mrs Olley had her fur coat stolen from a locked root in the Marlborough Court Hotel. The Hotel tried to defend the ensuing claim for damages on the basis that there were notices in the bedrooms disclaiming liability for thefts. The court ruled that the contract was formed at the reception desk, and Mrs Olley could not have know the Hotel’s policy. Therefore the exclusion clause wass struck out. Of course, if it could have been shown that Mrs Olley had visited the hotel regularly, and that she was aware of the terms under which it did business, the clause may have been allowed to stand.

Curtis v Chemical Cleaning and Dyeing Co Ltd (1951)

This case ([1951] 1 HB 805, 1 All ER 631) demonstrates that although ignorance of an Exclusion clause will not normally prevent an injured party being bound by its terms, misrepresentation might. Ms Curtis took a dress to be cleaned, and was asked to sign a contract. When asked what the contract bound her to, the company’s employee said it was to disclaim liability for damage done to `beads and sequins’ on the dress. The dress came back stained. In fact, the exclusion clause was for all damage of any kind, but the court ruled that the company could not rely on it because it had been misrepresented in the shop.

Parker v South Eastern Railway (1877)

This case (Parker v South Eastern Railway (1877) 2 CPD 416) demonstrates that while a person cannot escape the effect of an Exclusion clause by failing to read the contract terms, it may be a defence to show that the profounder of the clause had not taken sufficient trouble to bring it to notice. The case concerns a railway ticket, and an exclusion for liability printed on its back. Mr Parker claimed that he thought the ticket was merely a receipt, not a contractual document. The jury in the original trial found for Mr Parker, on the basis that his reasoning was sound. However, the CPD ordered a re-trial because this wasn’t the case in point; the relevant issue was whether SER had taken reasonable steps to indicate that contractual nature of the ticket.

L’estrange v Graucob (1934)

This case (L’Estrange v Graucob Ltd [1934] 2 KB 394) demonstrates that one cannot evade being bound by the terms of a Contract, even an Exclusion clause on the basis that one did not read or understand the terms. Mrs L’Estrange owned a cafe. She ordered a cigarette machine from the manufacturers which, it turned out, never worked properly. Although an implied contract term in the sale of goods is that the goods will be suitable for the purpose intended, the contract — which Mrs L’Estrange had signed — did state that the manufacturers disclaimed all liability regarding the malfunction of the machine. It was held that Mrs L’Estrange could not claim damages on the grounds that she “did not see” the clause in the contract. There was no evidence of fraud or misrepresentation that might have mitigated this judgement.

Seapower Resources Cold Storage & Warehousing Ltd. v. Assure Company Ltd.

In this case the claimants, cool store and warehouse operators, claimed unpaid storage charges in respect of consignments of garlic entrusted to their care by the defendants, acting as agents for the owners of the garlic. The defendants denied liability for the storage charges on the grounds that the plaintiffs had repudiated the contract by storing the garlic at the incorrect temperature, causing it to sprout and to lose thereby part of its value. The defendants counterclaimed for the damage to the garlic. The plaintiffs’ claim failed, the court holding that they had failed to store the garlic at the temperature requested by the defendants, and the counterclaim succeeded for its full value. The court held that the plaintiffs could not limit their liability in reliance on the terms of their Godown Warrant, as they had failed to bring to the attention of the defendants the existence of these terms before the storage contract had been concluded.

Leonard v. Gt. Northern Ry. Co

In Leonard v. Gt. Northern Ry. Co. the plaintiff sent a consignment by rail. On arrival, four were missing. Under the terms of the contract set out on the forwarding note the plaintiff was required to notify the carriers of 10ss within three days. The plaintiff failed to do this. The plaintext’s claim was dismissed because of failure to comply with the notice provision. If the clause negatives a right to performance it is said to have substantive effect; if the clause regulates entitlement to damages it is procedural; only failure to satisfy the procedural steps laid down results in loss of the right to damages.

British Leyland Exports Ltd. v. Brittain Group Sales Ltd

It can sometimes prove difficult to decide whether the exemption clause has substantive or procedural effect. In British Leyland Exports Ltd. v. Brittain Group Sales Ltd.3 a contract for the supply of motor vehicles to the defendants in kit form included a clause which provided that while the sellers would endeavour to meet orders placed they “shall no be liable for any failure, delay or error in delivery, or any consequential loss there from, however caused.” O’Hanlon J. held that while this clause did not exclude the sellers’ primary obligation to deliver complete and satisfactory kits, the clause did limit the sellers’ remedy by excluding the general secondary obligation to pay damages when defective kits were provided.

With respect, this analysis seems to this writer to ignore the fact that the clause was in fact designed to limit the obligations on the seller to meeting orders where possible and effectively ensure that complete kits were provided. On this analysis there could be no room for a finding that the implied obligation excluded the claim for damages; the exclusion clause excluded the implied obligation and ipso facto, there was no contractual right which could bring the secondary obligation to pay damages into play.

Kenyon Son and Craven Ltd. v. Baxter Hoare & Co. Ltd.

There are several English cases in which the courts have suggested that th effect of an exemption clause is to qualify or limit the scope of the contractual duties one party is to perform. In Kenyon Son and Craven Ltd. v. Baxter Hoare & Co. Ltd. the defendants operated a warehouse and undertook to store peanuts owned by the plaintiff. This contract of bailment was concluded on the foot of the defendant’s standard conditions of business. One of the clauses provided that the defendant was not to be liable for loss or damage to goods unless such loss or damage was due to wilful neglect or default. The peanuts were damaged by rats and although the defendant had been negligent they had not acted with wilful neglect or default. Donaldson J. held that the clause was effective. It provided the defendant with a complete answer to the action because the clause made it clear that the defendant was not undertaking to excuse reasonable care and skill. The clause also excluded the ordinary duty of a bailed for reward. This approach to the interpretation of the exemption clause is based on the assumption that the court should read the contract in its entirety and that a limitation of liability clause cannot merely limit liability but can also limit the duty undertaken by the person relying on the clause.

Karsales (Harrow) Ltd. v. Wallis

It must, however, be conceded that there are other views of the role of an exemption clause. Some judges hold that the clause merely operates as a defence to liability and that the approach to be adopted in the interpretation of an exemption clause is to leave the clause to one side and then interpret the contract so as to see what the parties have undertaken. The clause is then examined to see if it provides a defence to the plaintiff’s action. The best example of such a process is the judgment of L.J. in Karsales (Harrow) Ltd. v. Wallis.5 This theoretical debate does some important practical consequences, as well shall see. The exemption clause possessing substantive effect is designed cite risk between contracting parties–should goods stored with a under a bailment contract be destroyed while in his possession the may have anticipated this possibility and by contract transferred risk the owner. In principle there is no reason why this should not be ted where the bailed has not acted fraudulently or deliberately the goods. Difficulties arise when the party invoking the exemption is in a stronger bargaining position and has exploited this by draconian provision which, on its face, protects him. The courts and the legislature have dealt with such instances of abuse freedom of contract in different ways.

Hughes v. J.J. Power Ltd and Colliers Ltd

While most exemption clauses are written statements which are found either in the contract document itself, or in standard conditions of c0n-: tract, there are instances where one party may verbally limit the scope of his contractual duty. In Hughes v. J.J. Power Ltd and Colliers Ltd.6 the plaintiff took a tractor engine to the second defendant, a motor engineer, in order to have the engine serviced. The work to be done was somewhat difficult due to certain defects in the engine and the second defendant indicated that he would do the work but that the work would be done at the owner’s risk. Blayney J. held that this statement was that the second defendant would not be liable for any physical damage caused during the necessary work and that a term to this effect was imported into the .contract-. This case provides a neat illustration of the fact that clauses which exclude a particular duty are essentially concerned with risk transfer or risk allocation.

Spurling (J) Ltd v Bradshaw (1956)

Eight orange juice casks belonging to Bradshaw (defendant) were stored with Spurling (plaintiff), who had a no-liability clause inserted into the contract for warehousing which included that all risks were assumed by Bradshaw. When the goods were handed back to Bradshaw’s agent by Spurling, it was discovered that contents of three of the casks were damaged.

Held: The defendant refused to pay for the outstanding balance and counterclaimed the plaintiff for negligence. The plaintiffs were held to be entitled to rely on this exemption condition – it was considered “reasonable” – there was no need for exceptional notice.

Richardson Spence & Co v. Rowntree

In the case of Richardson Spence & Co v. Rowntree3 the House of Lords applied the approach outlined earlier in Parker. The plaintiff was a passenger on a steamer travelling from Liverpool to Philadelphia. The plaintiff was given a folded ticket, no writing being visible in this form. The ticket, when opened had a great many conditions, one of which limited liability for personal injury or loss of baggage to $100. The plaintiff never read the ticket. The plaintiff was injured whilst on the vessel. At first instance Bruce J left three questions to the jury:

1. Did the plaintiff know that there was writing on the ticket? This question was answered in the affirmative.

2. Did the plaintiff know the writing contained conditions relative to the contract of carriage? This was answered in the negative.

3. Did the defendants do what was reasonably sufficient to give the plaintiff notice of these conditions? This question was answered the negative.

The High Court, Court of Appeal and House of Lords held that in the light of these findings the limitation clause was not available to the defendant.

Ryan v. Great Southern & West Ry. 4 in 1898

In Ryan v. Great Southern & West Ry. 4 in 1898, the plaintiffs baggage had been lost by the defendant. Terms of the plaintiffs ticket referred to standard conditions which were available for inspection. Upon finding that the plaintiff was unaware that the ticket contained limiting conditions of contract it was further held that insufficient notice had been given of the term.

Taggant v. Northern Counties Ry. 5 in 1898

This case illustrates the fact that if the plaintiff is found to know that the ticket or contract document contains contractual conditions; the plaintiff will be bound even if he is unaware of the precise terms of contract. The Irish courts have not laid down exacting standards which a proference must meet before the limiting term will be incorporated.

Early v. Gt. Southern Ry

In this case, the plaintiff was given an excursion ticket which on its face referred the passenger to the company’s special conditions containing the limiting provisions. The plaintiff was injured. Notwithstanding the fact that the conditions were not available for inspection at this particular booking office the defendants were held entitled to rely on this clause.

Shea v. Great Southern Ry.7

In Shea v. Great Southern Ry.7 the plaintiff took a bicycle onto a crowded bus. The bus ticket referred to a notice excluding liability for theft. The plaintiff was held bound by the notice. Judge Davitt said that the plaintiff was “at liberty to get off the bus or remove his bicycle.” If the proferens wants to be sure that the clause will be incorporated into the contract he should obtain the signature of the other party to a contract document setting at the term.

Sproule v. Triumph Cycle Co

In Sproule v. Triumph Cycle Co.2° the plaintiff approached an agent of the defendants with a view to buying a motor cycle. He did not read a catalogue which attempted to limit the defendant’s obligations to replacement of defective parts for three months after purchase. This “guarantee” was also set out on a card attached to the bike although this was not handed to the plaintiff and read by him until after the sale had been concluded. The plaintiff was held entitled to rely on section 14(1) of the 1893 Act. Moore C.J. held the guarantee ineffective because it was not read until after the contract had been concluded. It should be noted that when the case does not involve a railway ticket case the onus on the proferens is gather when he alleges incorporation has occurred.

Brady v. Aer Rianta

In this case, the printed conditions were set out on the ticket and the terms were actually displayed on a notice board outside the entrance to the car parking area at Dublin Airport. Butler J. held that in these circumstances the contract was concluded before the plaintiff entered parking area and the defendant had given reasonable notice of a clause prior to the contract being formed. This reasoning has been followed in Beirne v. Aer Rianta.

Slattery v. C.I.E.

In Slattery v. C.I.E the plaintiff signed a consignment note which stated that delivery would place at the owner’s risk. This note was not signed until after the ‘ ” the horse had occurred and after the journey had been completed: this an oversight on the defendant’s part. The defendants were held to entitled to rely on the document as setting out the terms of the agreement. It should be noted that in this case, as in Knox, the plaintiffs envisaged that the contract document had still to be completed; as Holmes J. said in Knox: “It is neither illegal, unreasonable nor unusual, for the terms of a contract to be reduced to writing after the performance of the services contracted for has been begun.” If this was a case of the proferens attempting to add an exempting clause when a written or oral contract had already been completed

CONCLUSION

In exemption clauses, it is generally having a few limitations. Firstly, exemption clause should be clearly worded for example not absurd and must not be ridiculous. Secondly, exemption clause must come before the formation of a contract or agreement. Besides that, the exemption clause also needs to be legible. Next, exemption clause must be placed in places which can be seen easily by people. After that, exemption clause also cannot be applied for children as well as unfortunate for example handicap. In the limitations of exemption clause, the courts will look into the policy consideration, the types of contract and also floodgate of litigation before deciding on application of exemption clause. In addition, exemption clause is ineffective when situation is attempt to exempt liability for death or personal injuries, situation of attempt to exempt liability in respect of seller’s implied undertaking as to title and also situation of attempt to exempt liability in respect of seller’s obligations in respect of quality. So, exemption clause operates as to exclude or restrict the rights of a party in a contract.