© griffith college professional law school chapter 13 exclusion, exemption and limitation clauses

© GRIFFITH COLLEGE PROFESSIONAL LAW SCHOOL

Chapter 13

Exclusion, Exemption and Limitation Clauses


Exclusion Clauses

• Term of K – intended to – Limit duties of one party– Limit remedies available

• Some exclude liability altogether, some exclude types, some limit liability, some set terms upon which liability may be accepted (i.e. time limits) and so on


Hostility to them?

• If they are clear, nothing the court can really do – some statutory provisions

• However, court has interfered on basis of notice (i.e. I didn’t know) – incorporation of clauses is an issue

• Also courts have interpreted clauses to see whether they will cover particular breaches…

• So some judicial oversight of them


Incorporation

• Main principle – there is nothing wrong, per se, with exclusion or limitation clauses

• But to form part of the contract they must be brought to the “attention” (in a loose sense) of the person to be bound by giving him or her sufficient notice of them.

• Manual re-drafting here


Incorporation By Notice

• Signature – sign it, bound by it– See L’Estrange v Graucob

• café proprietor purchased a cigarette machine and signed the contract without realising an exclusion clause, in small type, on poor quality brown paper, was in the contract. There was an issue with the machine, but signature mean the clause was valid as against the proprietor.

– Duff v Great Northern• Shipment of cattle – clause said if accompanied cattle, he did

so at own risk – signed it – no inquiry into notice by court – prima facie bound


But…

• The rule does not apply where the document you are signing is not a contractual document.

• Grogan v Robin Meredith Plant Hire (1996) 53 Con LR 87– Time sheet was signed which had certain clauses on it, but

signature was not enough to bring them into play. – The logic is that when you sign a contractual document the law

deems that you should look into it. Where you sign something which doesn’t look like a “contract”, on the other hand, you’re not expected to have the same vigilance.

• Non est factum - p.127


Dissatisfaction?

• Regan v Irish Automobile Club (1990)• O’Connor v First National Building Society

(1991)– Both Lynch J decisions– Both could have been dealt with by

“signature” point– But could went on to point out that clause had

been properly notified


Skipping

• At para 13-11 we move to heading “Where the Contract has already been formed”

• Involves a bit of a sojurn, but important– Olley– Sproule– Thornton


Next Set of Cases

• In these cases the contract is usually contained in one document (or oral) with a reference to the exclusion clause in another. In such cases the person relying on the clause must have taken reasonable steps to bring it to the other parties notice.

• What does this mean?


Parker v South Eastern Railway.

– The plaintiff left luggage in a railway cloakroom and got a ticket for same.

– The ticket had writing on the front and the words “see back”.

– On the back was an exclusion clause saying liability for damage over 10 pounds was not accepted.

– Was the clause part of their contract? It would be if he had received adequate notice. The Court held he had.

– Now, bear in mind that the ticket said “see back” and on the back was the relevant term. Lord Bramwell held, in such a case, that it may as well have been the case that a person of the railway said to the Plaintiff “here, read that, it concerns you” but the Plaintiff simply didn’t.


• Does Parker give us a general principle? It is still reasonable to expect every passenger to read the backs of their tickets? What about where the ticket said “see terms and conditions which are kept at head office”?

• Outside of Parker, things get difficult


Early v Great Southern Railway Co.

• Here discount tickets were sold to the plaintiff in circumstances where posters at the station said they were being issued subject to terms and conditions contained in the company’s timetables which were not available in the station

• The SC held that the clause was still incorporated! (in 1940)


Shea v G.N.R. (1944)

• Davitt J concludes that a term drawing attention to terms and conditions held in head office was acceptable!


But…..1882 case

• Ryan v Great Southern and Western Ry– Lost luggage – ticket made refer to stad terms

to be read elsewhere – excluded liability– No R.steps taken to bring to attention


• What appears to be the reasoning here is that the courts are taking the view that the person must be taken to know that terms existed even if they do not know the details of them. The logic appears to be that you are engaging in a contract knowing that out there somewhere are limitation or exclusion clauses but you proceed nonetheless.


• Obviously, what is essential here is to have some form of arguing for either– Early / Shea

• Or

– Ryan

As being the correct approach in Irish law


Notice in “Unusual Cases”

• First, if there is “special” law for “unusual” cases, doesn’t that mean we have to be able to tell usual from unusual? How could we do this?

• Has the law actually changed in England about what constitutes notice?


Modern MovementThornton v Shoe Lane Parking

• Here Thornton pulls up to a car park and is issued a ticket from the automated machine which says that it is subject to terms.

• The exclusion clause was in these terms but were displayed in the car park out of the field of vision at the point at the machine.


• Now…Thornton got a ticket that said “terms apply”.

• So did Shea and Early. Shea and Early could not read the exclusion clause.

• Neither could Thornton.

• Denning says the clause is not incorporated here?


• What Denning actually held was that the contract was completed before the ticket was issued. He noted that the old ticket cases were – “based on the theory that the customer, on being

handed the ticket, could refuse it and decline to enter into a contract on those terms. He could ask for his money back. That theory was, of course, a fiction. No customer in a thousand ever read the conditions. If he had stopped to do so, he would have missed the train or the boat.”

• However, where the ticket was issued by the machine and although the customer “may protest to the machine, even swear at it […] it will remain unmoved.” Accordingly, the contract was concluded at the time Thornton inserted the money in the machine (the time he became “committed beyond recall”)


But Denning seemed unhappy with such clauses generally

• One lovely comment was where he dealt with the argument that customers should be deemed to read notices, once they are notified of their existence by pointing out that if one stopped to do so, “he would have missed the train or bus”!


• So, Denning said the term was not actually part of the contract

• Denning did, however, deal with the possibility that the old ticket cases did apply to the present situation. In such a case, well, he just changed the law and held that the proper test was to require notice of the actual excluding provision:-– “It is no use telling the customer that the ticket is

issued subject to some “conditions” or other, without more: for he may reasonably regard “conditions” in general as merely regulatory, and not as taking away his rights, unless the exempting condition is drawn specifically to his attention.”


Other cases that may help the argument

• Interfoto (1988)

• Western Meats (1982)


• Interfoto Picture Library v Stiletto Visual Programmes– D ordered transparencies from P – didn’t see it – but

terms said if kept for 14 days fee of £5 per day would accrue on each photo

– Kept for 28 days…fee of near £4000– CA held that where clause was “particularly

onerous or unusual” it must “fairly be brought to the attention” of the other party

• Not Ex Cl here – but logic – if exclusion of liability is such, it would seem there must be specific efforts to bring it to attention


Western Meats v National Ice and Cold Storage

• Stad terms excluded liab for neg• D mislabelled goods so they could not be found

– delay and costs • Could not rely on clause• Barrington J

– A business-man, offering a specialist service, but accepting no responsibility for it, must bring home clearly to the party dealing with him that he accepts no such responsibilty

• Would it only apply to wholesale exclusions in specialist services?


Carroll v An Post [1996] 1 IR 443• Mechanic got six numbers, but the Lotto agent had not properly

entered his slip, and so he didn’t win (he got two tickets for one slip, and no ticket for the winning slip)

• At the bottom of the playslip was a blue arrow and the words "See Instructions on Reverse side" were printed in red in block capitals. Printed on the reverse side were extracts from the rules including the following statements:—

– "Players acknowledge that Lotto agents are acting on their behalf in entering plays into the National Lottery computer system"

– and, in bold type,– "By playing the game, a player agrees to abide by the National Lottery

rules and regulations in effect at the time the play is made.– A Summary of these rules is available for inspection at your local Lotto

Agent.“• Rule 4 (3) (f) provides:—• "The National Lottery shall not in any circumstances be liable to a

player for any acts or omissions by the Lotto agents.“


• Costello P said that since the plaintiff knew that there were rules on the back of his payslip, he was bound by them, even if he didn’t know the details of them.

• “I conclude, therefore, that as the plaintiff knew there were rules printed on the back of the playslip (but did not bother to read them) the defendant company can rely on both exemption terms because it was not required to give special notice of these particular terms to the purchasers of Lotto tickets.”

• Approach appeared to be taken that special notice was required above what was done here only where the terms were particularly onerous and unreasonable.


Review

• What do these cases say about the railway exclusion clauses?

• Or clauses on a bus ticket?

• Or car park?

• Remember…consumer law will have an input here…always bear this in mind.


Principles?

• Automated ticket machines? Contracts completed where you insert monies – therefore anything after is not part of the contract?

• What if there is writing on the machine itself?

• Wider view – draw exempting clause specifically to attention of the person?


Incorporation by Course of Dealing• Spurling v Bradshaw

– D had previous business dealings with the plaintiff warehousemen (manual error there)

– Delivered to them eight barrels of orange juice for storage

– Few days later D received a "landing account" which on its face referred to conditions printed in small type on the back.

– These included the London lighterage clause, which exempted the plaintiffs, inter alia, from liability for any loss, damage or detention, in respect of goods entrusted to them in the course of their business, occasioned by the negligence, wrongful act or default of themselves, their servants, or agents.

– D bound

– Mr. Bradshaw admitted that he had received many landing accounts before. True he had not troubled to read them. On receiving this landing account, he took no objection to it, left the goods there, and went on paying the warehouse rent for months afterwards. It seems to me that by the course of business and conduct of the parties, these conditions were part of the contract.


• Hollier v Rambler Motors– P left car in garage to be fixed (oil leak)– While it was at the garage a fire broke out as a result of which

substantial damage was done to the car.

– Salmon LJ

– “Mr. Tuckey says that there was a course of dealing which constituted the three or four occasions over five years - that is, on an average, not quite one dealing a year - from which it is to be implied that what he called "the condition" at the bottom of the contract should be imported into the oral agreement made in the middle of March 1970. I am bound to say that, for my part, I do not know of any other case in which it has been decided or even argued that a term could be implied into an oral contract on the strength of a course of dealing (if it can be so called) which consisted at the most of three or four transactions over a period of five years.”


Interpretation of Ex Clause

• Will it cover a particular breach?• Contra proferentem rule• Burton v English (1921) – Para 13-30• Houghton v Trafalgar Insurance (1954)


The Type of Risk Covered

• Brady v Aer Rianta (1974) – “at own risk” covered theft

• Probs relate to negligence

• Canada Steamship v R (1952) – Para 13-35


Very tricky logic

• Recall that we are dealing with vague clauses – “the parties exclude liability howsoever caused”

• The proferens wants to say “this covers negligence”

• Now, the logic is that if the cause of action could be taken on some other ground (e.g. contract, statute) the clause won’t be interpreted as excluding negligence

• Why?


• Well, we are construing the clause against the proferens

• So, if there is another cause of action (contract) and he says he can’t be sued in tort, we construe the clause against him and say “your ambiguous clause refers only to liability in contract”


White v Warrick

• Pl hired bicycle (tricycle actually) and the saddle slipped and he was injured

• Sued

• Clause said hirer would not be responsible for any personal injuries to the riders…

• Held that whereas clause excluded liability in contract, it did not exclude negligence


– Singleton LJ• “In the circumstances of the present case the

primary object of the clause, one would think, is to relieve the defendants from liability for breach of contract or for breach of warranty. Unless, then, there be clear words which would also exempt from liability for negligence, the clause ought not to be construed as giving absolution to the defendants if negligence is proved against them.”


Hughes v JJ Power Ltd and Colliers Ltd (1988)

• Blayney J notes limitation on the above

• Where same duty is applied by both common law and tort!

• Complex point.

• Comes up where term to use reasonable skill is implied in professional service contracts (which is equivalent to duty in tort)


Fundamental Breach

• Logic – Exc cannot cover fundamental breach of K

• Unsure as to current scope or status


Clayton Love v B&I Steampacket

• Transport of quick frozen scampi – term that be kept refrid. Breached.

• Two clauses – one a three day time period, the other excluded liability for damage

• SC O’Dalaigh CJ – breach of a fundamental obligation cannot rely on a time bar to defeat claim in D – but said the same for other exempting provisions


• Discredited approach in the UK• Photo Production Ltd v Securicor

– No rule of law to this effect– Will depend on each contract

• Obiter in Western Meats (para 5.30) and Fitzpatrick & Harty cases that this would be followed

• Regan v Irish Automobile Club left it expressly open


What is a fundamental breach?

Clayton Love Itself

• HC Davitt P– FB – one that goes to root of K– This case was one – service they got radically

different from that which they sought – no neg, no inadvertence – was the way the D actually intended to carry the scampi!


SC – O’Dalaigh CJ

• Cited this

• Is the test whether what we “got” was radically different from that which we contracted for?


Kenyon Son & Craven Ltd v Baxter Hoare

• D’s negligently failed to protect nuts in storage from rats – lost 20% of them

• Breach was serious not F – Donaldson J said it did not make the performance totally different from that which the K contemplated


Hunt & Winterbottom v BRS (Parcels)

• D lost 3/15 parcels – relied on limitation clause• Said loss of parcels could not be equated to F

breach of K

• So what could? Advise to client…caution• Really need disasterous consequences…what

the law looks for


How can this arise?

• Trying to get around Exclusion clause…and all you have left is F breach


Exclusion v Limitation Clauses

• Moodle Supplement

• Example of Limitation Clause– In the event of a breach of this contract, the party complaining of

such breach will be limited to recover the sum of €10,000 from the party against whom the breach is alleged.

• Example of Exclusion Clause– The vendor accepts no liability whatsoever under this contract

for any damage done, loss or injury suffered as a result of any breach of any of the obligations contained in this contract or otherwise implied by any other means.


Ailsa Craig Fishing Co Ltd v Malvern Fishing Co. Ltd [1983] 1 WLR 964

• Securior staff negligent at harbour leading to sinking of ships (about 55K cost). Clause limited liability to:-– “any loss of damage of whatever nature

arising out of connect with the provision of or failure in provision of, the services covered by this contract…to a sum…not exceeding £1,000 [for] one claim…and…£10,000 for the consequences of any incident involving fire, theft of any other cause”


• Lord Wilberforce, that limitation clauses should not be treated “with the same hostility as clauses of exclusion”.

• Lord Fraser thought that the rules for the construction and interpretation of exclusion clauses should not be applied in their “full rigour” to limitation clauses.

• The above clause was therefore perfectly fine.


• In HIH Casualty Insurance and General Insurance Ltd v Chase Manhattan Bank [2003] 1 All ER (Comm) 249, Lord Hoffman doubted whether Ailsa was intended to create a “mechanistic rule”.

• In BHP Petroleum v British Steel [2000] 2 All ER (Comm) 133) Evans LJ reminded us of the line from Ailsa:-– The more extreme the consequences are, in terms of

excluding or modifying the liability that would otherwise arise, then the more stringent the court’s approach should be in requiring that clause be clearly and unambiguously expressed.


Biffa Waste Services Limited v Maschinenfabrik Ernst Hese GMBH

Outokumpu Technology Wenmec AB and ors [2008] EWHC 6 (TCC)

• (1) Limitation of liability clauses are construed with less rigour than exclusion of liability clauses or indemnity clauses.

• (2) The guidelines in Canada Steamship provide helpful guidance on the proper approach to interpretation but do not lay down a code which prescribes rigid rules to be applied mechanically to interpret a particular clause.

• (3) The relevant clause must be construed in the context of the whole instrument and against the admissible background, to ascertain whether the wording, although literally wide enough to cover negligence, did not do so.

• (4) In the case of exclusion clauses or indemnity clauses it is inherently improbable that one party intended the clause to release the other party from liability for negligence or impose an indemnity for the other party's negligence. But, in the case of a limitation of liability clause there is no such high degree of improbability.


Exclusion Clauses and Third Parties

• 1. Himalaya Clause – Eurymedon• 2. Construction Contracts

– Similar– Southern Water Authority v Carey (1985)– Norwich City Council v Harvey (1988)

• No reference to sub-K, no statement of agency

• 3. Bailment– Bailee bails to sub-bailee– Sub-bailee can rely on contract between bailor and

head bailee

© griffith college professional law school chapter 13 exclusion, exemption and limitation clauses

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