Exemption Clauses

Contract Law - Exemption Clauses

  • Created by: mplatt
  • Created on: 10-02-11 13:17


Exemption Clauses - seek to enable one of the parties to a contract to exclude their liability.

Limitation Clauses - seek to restrict the liability of a particular individual.

The courts have attempted to limit the use of exemption clauses.

First, the party relying on the exemption clause will have to show that the clause amounts to a term in the contract.

Second, in order to protect the party relying on it, the exemption clause has to be consturcted in such a way that is actually deals with the loss or damage that has occured.

Finally, the law has introduced other measures designed to restrict or prevent the operation of exemption clauses in certain circumstances.

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Incorporation by Signature

Should a party sign a contractual document they will be prima facie (at first look) bound by the terms of that contract, even if they have failed to read that document, unless they have been induced to sign by virtue of some misrepresentation or fraudulent contract.

L'Estrange v Graucob [1934] - the plaintiff purchased an automatic vending machine. The purchase was made on terms set out in a document stated to be a 'Sales Agreement'. A number of the terms were set out in what was described by the court as 'legible, but regrettably small print.' The plaintiff signed the 'agreement' but did not bother to read it. It was held that the plaintiff was bound by the terms of the agreement, so that the exclusion clause contained in it meant that the defendants were no liable on the basis that the machine was not fit for purpose for which it was sold.

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Incorporation by Notice

A party to a contract may be bound by its terms provided reasonable notice of those terms is brought to the party's attention, despite the fact that the contractual document has not been signed. What is reasonable here depends on a number of factors.

The Document must be a Contractual Document

The exemption clauses contained in an unsigned document will fail to form part of a contract if it was never intended that the document was to have such an effect. The person to whom the document was given must know, or must be given reasonable notice, that the document was to be a contractual one to become a binding contract. A reasonable test must be performed and asked, would a reasonable person have assumed that the document was to be a contractual document?

Chapelton v Barry UDC [1940] - The plaintiff was given a ticket, on hiring a deckchair. He did not reas the ticket, which stated on the back that the Council would be liable for any damage or injuries suffered to the hirer while using the chair. The canvas on one of the chairs was defective and he claimed damges for injuries resulting from the defect. It was held that the ticket was not a contractual document but a mere voucher or receipt which no reasonable man could regard as otherwise. The exemption clause did not thereby afford the local authrity with a defence to the action.

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Incorporation by Notice Continued

What degree of notice is required?

If the unsigned document is to be regarded as being an integral part of the contract, reasonable notice of the exemption clause must be brought to the attention of the other party. The test was first formulated in the following case.

Parker v South Eastern Railway Company (1877) - A bag was left at a left luggage office. The plaintiff paid the fee, for which he was given a ticket which contained a limitation clause on the back. When the plaintiff attempted to reclaim his bag it could not be found. He attempted to claim the value of the bag and the contents which exceeded the limit stipulated on the ticket. The railway company attempted to rely on the limitation clause which the plainiff claimed to be ignorant of. The Court of Appeal held that for the company to be able to rely on the clause it had to show that reasonable steps had been taken to bring the clause to the notice of the plaintiff. Since the company could not show this it was held that it could not rely on the clause. It is clear that merely handing over a ticket with an exclusion clause printed on it is insufficient since it may not be intented that the ticket will have a contractual force.

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Incorporation by Notice Continued

Whether or not reasonable steps have been taken to bring a party's attention to the existence of the exemption clause revolves around two questions; 1. Have adequate steps been taken to bring notice of the clause to the attention of the other party? 2. What is the nature of the exemption clause?

Adequate Steps?

Clearly, if a notice is contained in a contractual document then it is normally enough for the exemption clause to become a part of the contract.

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