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Exemption Clauses Sample Assignment

Introduction

  • An Exemption Clause is the attempt of one party to insert terms Excluding or Limiting liabilities which would otherwise be his.
  • An Exemption Clause purports to :
    1. Define the promisor’s obligations.
      • Thus one should read the contract as a whole and decide what it is that the promisor has agreed to do.
    2. Regarded as mere defences.
      • Thus one should first construe the contract without regard to the exemption clauses in order to discover the promisor’s obligation and only then consider whether the clauses provide a defence to a breach of those obligations.

Analytical Framework for exemption clauses:

1. Is the clause incorporated into the contract?

2. On construction, does it apply to the situation at hand?

3. Is it nevertheless inoperative

  • At Common Law?
  • Under Statute Law with reference to the UCTA (Cap 396, 1994 Ed)?

I. Is the Clause Incorporated into the Contract?

A. By Signature

  • In the absence of fraud or misrepresentation, a party who signs the document is bound by its terms regardless of whether the other party has read the clause or is aware of the existence of it. (L’Estrange v Graucob Ltd [1934])

Exceptions:

  • Doctrine of non est factum (it was not my deed) – alipplicable to vulnerable persons (blind or illiterate) who signed documents under a mistaken belief.
  • DF cannot rely on exemption clause if there is any misrepresentation (fraudulent, negligent or innocent) as to the nature of the document signed. (Curtis v Chemical Cleaning and Dyeing Co (1951)
  • Collateral Contract
    • Oral undertaking given at time of signing written contract may overshadow written contract and neutralise exemption clause.
    • Collateral contract may be implied by court and runs parallel to main contract, may add to or vary the terms of the main contract and render an exemption clause ineffective.
    • Evans(J) & Son (Portsmouth) Ltd v Andrea Merzario Ltd (1976)

B. By Notice

  • Where the contract is not written or where the terms are in an unsigned document, exemption clause may be incorporated by notice if PF had reasonable notice if he knew of the clause, or if reasonable steps were taken to bring the clause to his notice Parker v South East Railway Co.

To determine if notice was reasonably sufficient, consider following factors:

1. Type of Document

  • PF knew/ ought to have known that document was one which could be expected to contain such terms
    • Chapelton v Barry UrbanDistrict Council (1940) – Held that no reasonable person would expect to find contractual terms on a ticket since it was not a contractual document (rather, a receipt) and so clauses printed on a tickets cannot be considered terms of contract.

2. Time of Notice

  • Notice must be given before or at the time of contract Olley v Marlborough Court Ltd (1949) – Clause not incorporated into contract as contract was concluded at reception desk before notice was given on bedroom door.

3. Adequacy

  • DF has done everything reasonable to give adequate notice of existence of clause (question of fact whether such notice is given)
  • Where DF was not aware of PF’s disabilities - Thomson v London Midland Scottish Railway Co [1930] – illiteracy in this case was immaterial since reasonably sufficient notice w/o knowledge of disabilities had been given
  • Where DF knew of PF’s disabilities – Geir v Kujawa, Weston & Warne Bros (Transport) Ltd (1970) – No reasonable sufficiency of notice since DF was aware of PF’s disability but did not take reasonable steps to translate the notice

4. Effect of the Clause

The more onerous the clause, the greater the degree of notice required to incorporate it

  • Thorton v Shoe Lane Parking (1971) where the exemption clause relied on is unusually wide or onerous, such as this one, purporting to exclude liability for physical injury as well, it requires unusually explicit notice before it is applicable.
  • Interfoto Picture Library v Stiletto Visual Programmes Ltd (1989)- Terms of onerous nature called for a greater degree of it was not sufficient to incorporate the term into the standard printed conditions. It should at least be printed in bold type or a covering note drawing specific attention to it should be sent.

C. By a Previous Consistent Course of Dealing

  • Court may infer notice of exclusion clause from a long and consistent course of dealing between the parties. Spurling v Bradshaw (1956) – clause incorporated into the contract by previous course of dealing.
  • Hollier v Rambler Motors [1972] - held that 3 to 4 transactions in 5 years was insufficient to enforce inference of exemption clause. The course of conduct must be consistent and not just frequent.
  • Incorporation of clause possible where the general course of dealing amounts to a trade custom or usage even though the parties have not previously dealt with each other.

II. Whether the Clause applies to the Situation at Hand

A. Contra Proferentum Rule

If the wording in the exemption clause is ambiguous (there is doubt as to the meaning and scope of the exemption clause, it is strictly construed against the party intending to rely on it. (I.e. The construction least favourable to the person putting forward an instrument should be adopted against him)

Houghton v Trafalgar Insurance Co (1954) pg 301 English court of appeal held that the word “load” in “any load in excess of that for which the car was constructed” was ambiguous and should be given a narrow interpretation, referring to goods and not people, even though the case dealt with a five-seater car that was holding six people. Consequently the clause did not exclude the insurer’s liability.

In cases of Negligence Liability

White v John Warwick [1953] - Clause stated that “Nothing in this agreement shall render the owner liable for any personal injuries …” Court held that clause excluded Defendants’ liability in contract but not their liability for Negligence, ie. Clause did not cover the Defendants’ liability in Tort to take Reasonable Care.

In Hollier v Rambler [1972], the clause “the company is not responsible for damage caused by fire to customers’ cars on the premises” was held to be too ambiguous to cover negligence.

Page 303 for Rules of Construction for excluding negligence Canada Steamship Lines Ltd v R (1952)

  1. Clause contains language that expressly exempts DF from consequences of his own negligence (If 1 is not satisfied, 2 and 3 must satisfy)
  2. Whether words are wide enough
  3. Whether exemption clause covers some kind of liability other than negligence. If so, clause will apply to such liability and not extend to negligence

B. Doctrine of Fundamental Breach of Contract

  • Rule of Construction” Approach, ie. It is a question of construction in every case whether liability may be excluded regardless of whether a fundamental breach has been committed.
  • NB : This takes into account commercial transactions negotiated at arm’s length and leaves it to the parties to decide where the law will apply.

The Suisse Atlantique [1967] 1 AC 361 House of Lords

  • On the facts, the case contained no fundamental breach. Court was of view (dictum) that “Rule of Construction” approach

Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 House of Lords

Hl decisively rejected “Rule of Law” approach, held that on “Rule of Construction” approach, Defendants could apply Exemption Clause. Case was a commercial transaction at arm’s length and HL did not want to interfere with the allocation of risks. If the parties are of equal bargaining power, the clause will be examined in the context of the contract as a whole.

3. If Applicable, is it Nevertheless Inoperative

A. Common Law

(i) Misrepresentation

Curtis v Chemical Cleaning & Dyeing Co [1951] 1 KB 805 Court of Appeal

Facts : Plaintiff took clothing to Defendants for cleaning. Defendants told her that signed document only exempted them from certain liabilities. In fact, document sought to exempt all liabilities.

Held : Court held that Defendants were liable because of misrepresentation.

(ii) Overriding Undertaking

Mendelssohn v Normand [1970] 1 QB 177 Court of Appeal

Facts :

  • Plaintiff parked car often at Defendants’ carpark and always locked car.
  • On that occasion, Defendants’ employee said that he need not lock the car as they would check and secure the car.
  • Some documents lost.

Held :

  • Court held that the Exemption Clause was not applicable
  • Employee had made an overriding undertaking inconsistent with the Exemption Clause thereby rendering it inoperative.

B. Unfair Contract Terms Act (UCTA)

(Pay special attention to matters relating to sec. 2 – 4)

1. Does it apply?

Only applied for business liability: “… apply only to business liability, that is liability for breach of obligations or duties arising from things done or to be done by a person in the course of a business (whether his own business or another’s)…” (sec. 1(3) UCTA)

2. What kind of exception which seek to limit/except liability for?

  • Exclusion or limitation of liability for negligence: sec. 2
    • Death or personal injury à not permitted
    • s2(1) - a person cannot exclude his liability for negligence in relation to personal injury or death
    • Damage other than death or physical injury à permitted subject to test of reasonableness (for reasonableness test, see sec. 11(1))
    • s2(2) – provides that he cannot also exclude liability for negligence in relation to other losses (such as property damage) unless the exemption clause satisfies the requirement of reasonableness.
    • 6: The consumer rights enshrined in sec. 12 – 15 Sale of Good Act (Cap. 393) are entrenched by this section such that a seller cannot exclude his liability under the Sale of Goods Act by using an e.c. This is an absolute prohibition.
  • Exclusion or limitation of contractual liability: sec. 3
    • s3 provides that when one party is a consumer or on the other’s written standard terms, the other party cannot exclude his disability for breach of contract unless the term satisfies the requirement of reasonableness.
    • 3(1): Firstly, must show that one of the parties “deals as consumer” (see sec. 12 to know what “deals as consumer” means) or one of the parties deals “on the other’s written standard terms of business”
    • 3(2): then test of reasonableness must be performed

3. Test of reasonableness:

s11 provides that reasonableness must be judged at the time the contract was made and not at the time the breach occurred and the person who is alleging that the clause is reasonable has the burden of proving it to be such.

  • Schedule 2 of UCTA sets out 5 guidelines in determining the reasonableness test in relation to terms involving sale of goods and hire purchase, Section 11(2).
  1. The bargaining strength of the parties – if the bargaining strengths of the parties are equal, the e.c. is considered to be reasonable. Cosmat Singapore (Pte) Ltd v American National Trust and Savings Association (1992) + Metro (Pte) Ltd v Wormald Security (S.E.A.) Pte Ltd (1981) – in both cases, the e.c. was held to be valid. Both parties considered to have equal bargaining strength.
  2. Whether the customer received an inducement to agree to the term (did the business offer to cover more liability if the customer is to pay a higher amount?)
  3. Whether the customer knows or ought to know about the exemption clause – All factors in the incorporation of e.c. (see above)
  4. Compliance with some condition – Does the e.c. states that the business will only be liable if certain condition is adhered? e.g. return within 3 days?
  5. Insurance – is it more reasonable for the parties to rely on the insurance?

UCTA does not apply to all contracts.

  • ctts of insurance
  • ctts relating to the creation or transfer on interest in land
  • ctts relating to the creation or transfer of right or interest in patents, trade marks copyrights, registered designs or other intellectual property and
  • ctts relating to the creation or transfer of securities.

s3 does not apply to international supply contracts (s26)

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