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LEGT 1710: Assignment 2

Introduction

Winston is attempting to sue Ron for compensation for financial loss that resulted from the incident

that occurred in the Question. Whether Winston is bound by the words on the documents will

depend on the terms of the contract, more specifically the validity of the exclusion clause.

a) To determine whether Winston is bound by the words on the receipt or sign, it must be decided

whether the exclusion clause is effective or ineffective. This involves looking at whether the exclusion

clause is incorporated into the contract and if so does it cover the liability sought to be avoided by

Ron. If the exclusion clause is proved to be effective, then Winston may be found to be bound by the

words on the receipt or sign.

Is the Exclusion Clause a Term Incorporated into the Contract?

For an exclusion clause to be effective the document in which it is found must first be contractual in

nature. This can be defined by a signed document and/or provision of reasonable notice and timing

of notice.

In the Question, the receipt and sign on which the exclusion clause was found was not a signed

document. By drawing on the principle from the case of L’ Estrange v Graucob 1, ‘when a document

containing contractual terms is signed… the party signing it is bound,’ 2 regardless of whether they

are aware or unaware of the terms. It is arguable that as Winston had not signed any documents,

the exclusion clause was not incorporated into a contract and hence Winston is not bound to any

terms.

Nevertheless an unsigned document may still be contractual if it can be proven that a reasonable

person would expect to find contractual terms in the document,3 by examining whether ‘an alleged

party was aware, or ought to have been aware, of its terms and conditions.’ 4 Following the cases of

1 L’Estrange v Graucob (F) Ltd [1934] 2 KB 394

2 L’Estrange v Graucob (F) Ltd [1934] 2 KB 394

3 Khoury. D, Yamouni. Y (2010). Understanding Contract Law. 8th ed. Australia: LexisNexis Butterworths. pg169-190.

4 L’Estrange v Graucob (F) Ltd [1934] 2 KB 394

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Chapleton v Barry Urban District Council 5 and Causer V Browne6, unsigned documents in the form of

a receipt or voucher were found to be ‘understood as only a voucher…and not understood to contain

conditions exempting…common law liability.’7 Hence it can be argued that the receipt Winston

received was merely an evidence of payment, and a reasonable person would not expect it to

contain contractual terms.

However the extent to which the reasonable person would expect an exclusion clause on the

document is arguable. It must now be determined whether ‘reasonable’ notice was given at

reasonable timing, in order to determine if the exclusion clause was sufficiently placed to the

attention of the buyer. Ron had in fact displayed the exclusion clause on a sign on the counter of his

sales area (hence notice was given before the parties entered into the contract) and on the receipt

(hence notice was given at the time of purchase). These facts are similar to the case of Thompson v

London, Midland & Scottish Railway Co8, where notice was given before the entry to a contract (on

notices placed around the train station) as well at the time of purchase (on the ticket). It was held

that reasonable ‘constructive’9 notice was given, and so the plaintiff was bound by the exclusion

clause. Hence an exclusion clause may be valid if ‘handed to the person to be bound before or at the

time of the contract’ and/or on a ‘prominent public notice before or at the time of contract’.10

Furthermore on the basis of previous dealings, it can be argued that knowledge of the conditions

may be imputed on Winston. Winston had been dealing with Ron regularly for two years, providing

him ‘ample opportunity to gain knowledge of the exclusion clause.’ 11 Following the case of Balmain

New Ferry Co Ltd v Robertson12, the regularity of his dealings with the defendant, gave him sufficient

5 Chapleton v Barry Urban District Council [1940] I KB 532

6 Causer v Browne [1952] VLR I

7 Causer v Browne [1952] VLR I

8 Thompson v London, Midland & Scottish Raliway Co [1930] 1 KB 41

9 Latimer. P (2012). Australian Business Law. 32nd Ed. Australia: CCH Australia Limited.

10 Olley v Marlborough Court Lts [1949] 1 KB 532

11 Balmain New Ferry Co Ltd v Roberston [1906] HCA 83

12 Balmain New Ferry Co Ltd v Roberston [1906] HCA 83

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occasions to read the notice. Hence this case may act as a precedent. The failure to take up the

opportunity of reading the terms will not avert the assumption made that the party was unaware. 13

It is noteworthy that the consistency and regularity of the dealings is vital to inferring the party had

knowledge of the terms. In the case of McCutcheon v MacBrayn14, the lack of consistency in signing

the document failed to make the clause valid as well as in the case of Hollier v Rambler Motors15 the

lack of regularity of the dealings, only three to four occasions during a five year period, was not

sufficient opportunity. It can be argued that Ron was consistent in providing the receipt and

displaying the sign throughout his dealings with Winston and as the dealings occurred twice a month

over a two year period, this gives ample opportunity for Winston to gain knowledge of the notices.

Hence the exclusion clause was effectively incorporated into the contract as Ron had in fact provided

sufficient, reasonable notice that had been brought to Winston’s attention. This is further reinforced

by the regularity and consistency of their previous dealings. It can be concluded that Winston is

bound by the words in the sign and receipt as the terms were incorporated into the contract.

Does the Exclusion Clause Cover the Loss or Damage That Has Occurred?

Once the exclusion clause has been proved to be a contractual term, it must now be determined

whether the clause covers the liability sought by the defendant. This is carried out by examining the

construction of the contract, primarily looking at whether it was the parties’ intention for the

exclusion clause to be applicable.16 A general approach is construing the exclusion clause ‘according

to its natural and ordinary meaning read in the light of the contract as a whole.’ 17 Ron’s exclusion

clause ‘Ron is not liable for any loss or damage caused by the paint, regardless of how much loss or

damage may be caused,’ when interpreted under this rule is clear and unambiguous that Ron has

excluded himself from any liability.

13 Khoury. D, Yamouni. Y (2010). Understanding Contract Law. 8th ed. Australia: LexisNexis Butterworths. pg169-190.

14 McCutcheon v MacBrayn [1964] 1 WLR 165

15 Hollier v Rambler Motors [1972] 2 WLR 401

16 Carter. JW (2011). Carter's Guide to Australian Contract Law. 2nd ed. Australia: LexisNexis Butterworths. pg176-186.

17 Darlington Futures Ltd v Delco Australia Pty Ltd [1986] 161 CLR 500

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It is assumed that negligence was the cause of the damage or loss in the Question. Under the

negligence rule, to cover negligence, the words in the exclusion clause should strictly refer to that

coverage.18 Unlike the case of Bright v Sampson and Duncan Enterprises Pty Ltd,19 where it was held

that the words of the exclusion clause was not sufficient to cover liability, Ron’s clause specifically

states ‘any loss or damage’ which eliminates any confusion as to what extent of damage or loss.

These words can be found similarly in Glenmont Investments Pty Ltd v O’Loughlin where it was held

that an exclusion clause stating a party ‘will not under any circumstances be liable or responsible…

for any damage or loss,’20 was sufficiently worded to cover the liability being sought.

However under the four corners rule, it may be argued that in the Question, the action that occurred

was an act beyond the words of the contract. The tampering of the paint was a breach of an implied

term, where the party must act in a duty of care. The paint, while under the care of Jeff was

damaged as a result of actions not authorised by the contract.21 Jeff had in fact acted in a way that

was not intended by both parties. Drawing from the case of Thomas National Transport (Melbourne)

Pty Ltd & Pay v May & Baker (Aust) Pty Ltd22, a party is not liable if he ‘deals with them in a way that

is quite alien to his contract.’23 Jeff in the Question, had certainly acted outside his contractual

obligations and hence ‘cannot rely on conditions which were only intended to protect…if [he] carried

out the contract…in the way in which contracted to do.’24

18 Khoury. D, Yamouni. Y (2010). Understanding Contract Law. 8th ed. Australia: LexisNexis Butterworths. pg169-190

19 Bright v Sampson and Duncan Enterprises Pty Ltd [1985] I, NSWLR 346

20 Glenmont Investments Pty Ltd v O’ Loughlin (No 2) [2000] 79 SASR 185

21 Khoury. D, Yamouni. Y (2010). Understanding Contract Law. 8th ed. Australia: LexisNexis Butterworths. pg169-190

22 Thomas National Transport (Melbourne) Pty Ltd & Pay v May & Baker (Aust) Pty Ltd [1966] 115 CLR 353

23 Thomas National Transport (Melbourne) Pty Ltd & Pay v May & Baker (Aust) Pty Ltd [1966] 115 CLR 353

24 Gibaud v Great Eastern Railway Co [1921] 2 KB 426

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However ambiguity lies in determining if Ron is liable for Jeff’s (Ron’s employee) actions. Under the

contra-proferentum rule, the courts will tend to construe the clause against the party seeking to rely

upon it.25 The issue of determining if the employer is liable for the actions of its employees is similar

to that in the case of Photo Production Ltd v Securicor Transport Ltd. 26 Its exclusion clause read

‘under no circumstance shall the company be responsible for any injurious act or default by an

employee of the company.’27 It was held that the words of the clause were ‘so crystal,’28 that it

excluded liability. Although the issue is the same, the facts are different in the Question as Ron’s

exclusion clause merely states, ‘Ron is not liable for any loss or damage caused by the paint...’ and

clearly mentions nothing about his employees. Hence this ambiguity creates a path for Winston to

argue that the exclusion clause is not valid under contra-proferentum.

This issue may be answered by the doctrine of privity of contract, as Jeff is not a direct party in the

contract between Winston and Ron. The case of Norwich City Council v Harvey 29 illustrates that the

third party (employee of the sub-contractor) had no privity of contract.30 In the judgement of May LJ,

it was held that ‘If in principle the subcontractor owed no specific duty to the building owner in

respect of damage by fire, then neither … can any of its employees.’31 This can be applied to the case

in the Question. As it was proved earlier that the exclusion clause was valid through incorporation

into a contract excluding Ron from any liability, it can be concluded that Jeff being his employee also

holds no liability. Hence the exclusion clause covers both Ron and Jeff from any damage or loss.

Tentative Conclusion

25 Carter. JW (2011). Carter's Guide to Australian Contract Law. 2nd ed. Australia: LexisNexis Butterworths. pg176-186.

26 Photo Production Ltd v Securicor Transport Ltd [1980] 2 WLR 283

27 Photo Production Ltd v Securicor Transport Ltd [1980] 2 WLR 283

28 Photo Production Ltd v Securicor Transport Ltd [1980] 2 WLR 283

29 Norwich City Council v Harvey [1989] 1 WLR 828

30 C. A. Hopkins (1990). Privity of Contract: The Thin End of the Wedge?. The Cambridge Law Journal, 49, pp 21-23

31 Norwich City Council v Harvey. [1989] 1 WLR 828

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It is unlikely that Winston will be able to sue for compensation as he is bound by the exclusion

clause, through its successful incorporation into the contract through reasonable notice and previous

dealings. By examining the construction of the clause, Winston may argue that under contra-

proferentum and four corners rules, the exclusion clause does not cover the liability sought. However

the doctrine of privity of contract and the negligence rule is more likely to overturn this argument,

binding Winston to the exclusion clause.

b) In the case of Ron’s salesman misinterpreting the exclusion clause to only state that it excludes

liability in cases where the paint fumes affect people with an allergy to those fumes, rather than to

any damages or loss, Winston may not be bound by the clause. These facts are similar to the case of

Curtis v Chemical Cleaning and Dyeing Co.32 Despite the fact that Chemical Cleaning and Dyeing Co

had a clear exemption clause that protected them from ‘any damage however arising,’ the

misrepresentation of the assistant invalidated the effect of that clause. It was held that any type of

misrepresentation where a party acts to ‘mislead the other party about the existence or extent of

the exemption...will disentitle the creator of it to the benefit of the exemption’33. Due to the

similarity of facts, where Ron’s exclusion clause also was clear in excluding liability for ‘any damage or

loss,’ this case may be used as a precedent that holds the exclusion clause invalid due to

misrepresentation. Hence Winston will not be bound by the terms.

This can be further argued that although in part a) under the negligence rule, Ron was excluded from

liability, the situation in part b) is different as the exclusion clause interpreted by the salesman did

not in fact cover what actually occurred in the Question. It is important to note that even if in the

Question, Winston or another party did have an allergic reaction to the paint fumes, Ron would still

not be protected by the clause. This is due to the fact that an exclusion clause will only be effective

for negligence if clearly worded and not misleading or deceptive.34

Word Count: 1946

32 Curtis v Chemical Cleaning and Dyeing Co [1952] 1 KB 805

33 Curtis v Chemical Cleaning and Dyeing Co [1952] 1 KB 805

34 Latimer. P (2012). Australian Business Law. 32nd Ed. Australia: CCH Australia Limited.

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Bibliography

Cases

Balmain New Ferry Co Ltd v Roberston [1906] HCA 83

Bright v Sampson and Duncan Enterprises Pty Ltd [1985] I, NSWLR 346

L’Estrange v Graucob (F) Ltd [1934] 2 KB 394

Causer v Browne [1952] VLR I

Chapleton v Barry Urban District Council [1940] I KB 532

Curtis v Chemical Cleaning and Dyeing Co [1952] 1 KB 805

Darlington Futures Ltd v Delco Australia Pty Ltd [1986] 161 CLR 500

Davis v Pearce Parking Station Pty Ltd [1954] 91, CLR 642

Gibaud v Great Eastern Railway Co [1921] 2 KB 426

Glenmont Investments Pty Ltd v O’ Loughlin (No 2) [2000] 79 SASR 185

Hollier v Rambler Motors [1972] 2 WLR 401

J Surling Ltd v Bradshaw [1956] 1 WLR 461

McCutcheon v MacBrayn [1964] 1 WLR 165

Norwich City Council v Harvey [1989] 1 WLR 828

Olley v Marlborough Court Lts [1949] 1 KB 532

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Photo Production Ltd v Securicor Transport Ltd [1980] 2 WLR 283

Thompson v London, Midland & Scottish Raliway Co [1930] 1 KB 41

Thomas National Transport (Melbourne) Pty Ltd & Pay v May & Baker (Aust) Pty Ltd [1966] 115 CLR 353

Books

Carter. JW (2011). Carter's Guide to Australian Contract Law. 2nd ed. Australia

Gillies. P, Selvadurai. N (2009). Law of Contract. Australia: The Federation Press. pg92-102.

Khoury. D, Yamouni. Y (2010). Understanding Contract Law. 8th ed. Australia: LexisNexis Butterworths. pg169-190.

Latimer. P (2012). Australian Business Law. 32nd Ed. Australia: CCH Australia Limited.

Journal Articles

Hopkins. C. A. (1990). Privity of Contract: The Thin End of the Wedge?. The Cambridge Law Journal, 49, pp 21-23

Kapnoullas. S, Clarke. B. (2006). Incorporation Of Unusual Or Unreasonable Terms IntoContracts: The Red Hand Rule And Signed Documents. Deakin Law Review. 11 (2), pg 95-113.

Stewart. A. (1987). Oral promises, ad hoc implication and the sanctity of written agreements. Australian Law Journal. 1, pg2-16.