exemption clauses (stud.version) (1)

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Law 486 Contract Law


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CONTRACT LAW IIDR. NURAISYAH CHUA ABDULLAHOutlineIntroductionIncorporation of exclusion clausesInterpretation of exclusion clausesLegislative control of exclusion clausesFurther readingsA. IntroductionA term commonly found in contracts, whether in commercial or consumer contracts, is the exclusion clause.

An exclusion clause has been defined as any clause in a contract or term in a notice which purports to restrict, exclude or modify a liability, duty or remedy which would otherwise arise from a legally recognised relationship between the parties.

Exclusion clauses can be broadly classified into 3 main types. First, the clause may exclude legal duties which would otherwise arise from the contractual relationship of the parties. Second, the clause may limit or exclude liability in respect of duty which may be breached. Third, an exclusion clause may be only procedural in manner and purport to alter the normal burden of proof or provide that one matter is treated as conclusive of another or provide a time limit within which a suit must be brought.

Exclusion clause are also known as exemption clause or exception clause. IntroductionAn exclusion clause may completely exclude all liability or it may only set a monetary limit on liability in which case it is known as a limitation clause.

Exclusion clause are mostly found in standard form contracts. Standard form contracts are contracts whose contents, once formulated, will be used by a business firm with all its customers, in every bargain dealing with the same product or service. Thus, only one party has the right to determine the terms and the other party can either take it or leave it.

As standard form contract are frequently used by firms with the stronger bargaining power, they are frequently contract of adhesion where the weaker party merely adheres to the terms set by the stronger party. Due to the one-sided nature of standard form contracts, there is a tendency for inserting unfair terms and the most common unfair term is the exclusion clause.

IntroductionThe Contracts Act does not provide for the control of exclusion clause. The judicial control of exclusion clauses will be examined where the Malaysian courts have applied common law principles on (i) incorporation of exclusion clauses, and (ii) interpretation of exclusion clauses.

With the recent introduction of Unfair Contract Terms into the Consumer Protection Act 1999 in 2011, it is important to examine what would be the legislative control on exclusion clauses.

B. Incorporation of Exclusion ClausesThe first step taken by courts to control exclusion clauses is to insist that an exclusion clause must be incorporated into the contract. Before a clause purporting to exempt a party from liability can have effect, it must first be a term of the contract to be legally binding.

An exclusion clause can be incorporated into a contract:

By giving notice Through a course of dealingBy signature in a written document.(a). By NoticeNotice of an exclusion clause must be given before or at the time of a contract. Notices of exclusion clause can be found in billboards, for example, before the entrance of a car park and in documents such as tickets. To be effective, the notice must be sufficiently brought to the notice of the other party.

(i). Before or at the time of contractFor an exclusion clause to be effective, the party to be bound must have sufficient notice of the clause before or at the time the contract is entered into. Thus, it is important to determine when the contract is formed.

Case: Thornton v. Shoe Lane Parking Co Ltd. The Court of Appeal considered when a contract is formed in cases of car parks operated by automatic machines. In this case, the plaintiff parked his car in the defendants fully automatic car park. Outside the car park, there was a traffic light, which showed red, and a notice stating the charges and that the cars are parked at owner's risk. As the plaintiff drove in, the light turned to green and a ticket was pushed out from a machine. The plaintiff took the ticket from the machine, he saw that there was writing on the ticket, but he did not read it. There was also nobody in attendance.

In fact, the writing read: This ticket issued subject to the conditions displayed on premises. To find the conditions, the plaintiff would have to walk round the park, but he did not do so. The conditions exempted the defendant from liability for damage to car and customer, howsoever caused. The Court of Appeal held that the defendant could not rely on those conditions as they had not been incorporated into the contract. It was held that in the present case, the offer occurred when the machine was ready to accept payment and the acceptance occurred when the customer put his money into the slot. Thus, the ticket and the words printed on it were only given after the contract was entered into.Case: Olley v. Marlborough Court LtdThe plaintiffs, a husband and wife, paid for lodging a the defendants hotel. In the hotel room, there was a notice on the wall stating that the hotel would not be liable for the theft or loss of any items in the room. The wifes fur coat was stolen from the room when they went out for a stroll. The defendant argued that the notice in the room was incorporated into the contract.

The Court of Appeal held that the contract had been entered into before the plaintiffs entered the room in the hotel, and as notice of the exclusion clause was only given after the contract was entered into, it was not incorporated into the contract. In Thorntons case discussed earlier, another reason the exclusion clause was inapplicable was that the ticket was held to be no more than a voucher or receipt for the money that has been paid. To be effectively incorporated, the exclusion clause must be in a document where contractual terms are expected and not merely found in a receipt.

(ii). Notices in documentsCase: Chapelton v. Barry Urban District CouncilThe plaintiffs wished to hire a deck chair for use on the beach. At a pile of deck chairs belonging to the defendant council was displayed a notice stating that the hire of chair was 2d per three-hour session and that the public were requested to obtain tickets for inspection. The plaintiff obtained two chairs from attendant, paid 4d and took two tickets. On one side of the tickets was the statement that the defendant council would not be liable for any accident or damage arising form the hire of the chair. The plaintiff put the chairs up and sat down on a chair which gave away, resulting in injury. The issue which arose was whether the defendant council could rely on the exclusion clause printed on the ticket. The Court of Appeal held that the clause could not relied on by the defendant council, as notice of it had been given only after the contract had been entered into. Further, the exclusion clause was found in a ticket which was merely receipt acknowledging the payment received. Case: Grogan v. Robin Meredith Plant HireThe party alleged that he signed on a time sheet on the understanding that it was not part of an earlier oral contract. The Court of Appeal agreed and held that the standard conditions in the time sheet were not incorporated by the signature of one party on this document after the contract had commenced. Further, a time sheet was merely an administrative and accounting document and neither party to the contract nor a reasonable man would expect a time sheet to contain contractual terms or to have legal effect. (iii). Sufficiently brought to notice of other partyAn exclusion clause must be sufficiently brought to the notice of the other party. This means that an ordinary and reasonable person would have realized that there was an exclusion clause written on the relevant signboard or ticket.

Case: Parker v. South Eastern Railway Co. The plaintiff handed in a parcel of a value exceeding 10 at a cloakroom at a station of the defendant railway company, paid 2d and received a ticket. On the face of the ticket were the words see back and on the back, was a condition that the defendant would not be responsible for any package exceeding the value of 10. The parcel was subsequently lost and the plaintiff brought an action for its loss.

In this case, the Court of Appeal applied the reasonable notice test and held that it is not sufficient that the person in question knows that there was writing on the ticket, but that he must know or be given reasonable notice that the ticket contains conditions. Baggallay LJ stated that in the case of exclusion clauses found in unsigend documents, usually in a ticket, theree questions are relevant:

Did the person who received the ticket know that there was writing in the ticket?

Did the person know that the ticket referred to terms?

Did the party relying on the terms do what was reasonable to bring notice of the terms sought to be incorporated, to the other partys attention? Case: Henderson & Ors v. Stevenson. The House of Lords rejected an exclusion clause appearing on the back of tickets. In this case, the respondent was a passenger in the appellants steamer. On paying his fare, he received from the appellants clerk a ticket, on the back of which was printed a notice exonerating the appellants from liability for loss, injury, or delay to the passenger or his luggage, whether arising from the act, neglect, or default of the appellants, or their servants or otherwise.

There was nothing on the face of the ticket drawing the respondent's attention to this condition, nor was his attention directed to a printed notice to the same effect hanging up in the ticket office. During the voyage, the steamer was wrecked by the negligence of the appellants servant, and the respondent lost his l

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