The Use of Exemption

The use of exemption clauses are not objected by the courts themselves, however, the courts do object to the abuse of exemption clauses. People who use exemption clauses are often in strong bargaining positions and can use standard- form contracts to surreptitiously impose extremely wide and unreasonable exclusions of liability, safe in the knowledge that the other party will not even read these clauses, as well as object to them.

The Unfair Contract Terms Act 1977 provides a statutory basis for invalidating unreasonable exemption clauses. The European Union requires all Member States to legislate against unfair terms in consumer contracts, and has resulted in the Unfair Terms in Consumer Contracts Regulations.

As in the case of L’Estrange v Graucob (1934), if was held that the purchaser of a vending machine was bound by a very wide exemption clause contained in the small print of a order form. As in this scenario, it would be held that Seema would be bound by her signature on the form. It has been established that if a party has signed a document then it is reasonable to conclude that he agrees to all the terms and conditions in that document. The basis of this rule lies in the objective approach to intention.

Exemption clauses like all other terms of a contract, can be incorporated by a signature, reasonable notice, and course of dealing a trade custom. If parties have usually contracted on certain terms in the past, it will not matter that on that one particular occasion they did not incorporate those terms into the contract in the usual way. In the case of Hardwick Game Farm v Suffolk AA (1969) the parties had contracted three or four times a month over a period of three years on terms that excluded the sellers liability or latent defects in pheasant food. In this case, it would be irrelevant how many times Seema has used the car rental company, as she had signed the form agreeing at the company will ‘not be liable for any injury caused… and pays the hire charge.’

In order for the party who are responsible for the clause to exclude liability for negligence, the words of the clause must be clear. It could be argued that the wording of the clause used by Harts Ltd, is clear. ‘Consequential loss howsoever caused’ is a wide term. This can cover all losses in all circumstances, however, a well drafted broad clause excluding such liability could be effective at common law even if they operated unfairly. Contra proferentem is a term where by the exemption clause will be interpreted against the person seeking to rely on it so as to exclude their liability. The case of Houghton v Trafalgar Insurance Co. Ltd (1954) explains how unclear words can result in the party relying on the clause, to be unable to rely on it. The word ‘load’ in the case of Houghton was interpreted as baggage, not ‘passengers.’

In this situation, Seema has been given a car by Harts Ltd, who was fully aware of the problem with the car. The Privy Council provided some guidance in Canada Steamship Lines v The King (1952). Harts Ltd have been negligent in allowing Seema to drive a damaged vehicle.

Under common law, the courts can only attack an exemption clause by refusing to incorporate it into the contract or by interpreting it in such a way that it does not exclude the liability incurred. The courts cannot simply declare a clause invalid.