Attempted exclusion or restriction of liability

The problem question concerns exclusion clauses and to what extent is Victoria bound by the attempted exclusion or restriction of Splosh Ltd’s liability.

An exclusion clause may be defined as a ‘clause in a contract or a term in a notice which appears to exclude or restrict liability, or a legal duty which would otherwise arise.’ [1] There are three circumstances in which an exclusion clause may be existent. Firstly, it must be incorporated into the contract, if it has then it must be construed to see if this covers the breach of liability and thirdly, the test will be set out under the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999.

WITH SIGNATURE

The court will enforce the clause prerequisite it is incorporated with sufficient notice. An oral agreement is exempt for the reason that there is no evidential proof that this clause was incorporated. If Victoria had signed the contract there would be a strong presumption that she was bound by its terms. In L’Estrange v Graucob [2] Scrutton L.J; ‘when a document containing contractual terms is signed…the party signing it, is bound, and it is wholly immaterial whether he read the document or not.’

WITHOUT SIGNATURE/BROUGHT TO ATTENTION

In the absence of signature, Victoria must be given adequate notice of the terms, as this is essential, not the actual reading or understanding of it. This was affirmed in Parker v South Eastern Railway Co. [3] 

STRANGE CLAUSES

Following Interfoto Picture Library v Stiletto Visual Programmes [4] Lord Bingham stated ‘…the more outlandish the clause, the greater the notice which the other party, if he is to be bound, must in all fairness be given.’ [5] 

There is no evidence of the terms and conditions have stated ‘see stapled slip for conditions’.

However there are exceptions to this rule whereby reasonable steps may not be seen as incorporated in the clause as seen in D & M Trailers (Halifax) Ltd v Stirling [6] on the condition that the parties have had previous contracts with same terms though this is irrelevant to the situation with Victoria.

POST CONTRACT

It is also essential for a clause to be incorporated into the terms of the contract for existence and would be void if this was to be done after the contract has been formed as seen in Olley v Marlborough Court. [7] 

Also outlined in Thornton v Shoe Lane Parking [8] there must be a ‘clear and prominent sign indicating risk and penalty. The exclusion clauses are given to Victoria prior to her accepting the terms of the contract thus the rule from Olley v Marlborough Court appears to be satisfied.

CONTRACTUAL DOCUMENTS

Although the conditions regarding notice are accumulated with, the text containing the clauses must be a contractual document where a reasonable man would assume the clauses would be contained in the conditions of a contract. In Chappleton v Barry UDC, [9] the receipt of a higher deck chair containing the clauses was not adequate notice and deemed unreasonable to assume that the receipt contained contractual terms. Following this decree, it would not be unreasonable to assume that the clauses had been incorporated into the standard terms and conditions provided by Splosh Ltd, although in the eyes of a reasonable man ‘a small slip of paper’ stapled to the document may not be seen as sufficient notice to be contained as conditions of the contract. This was also followed in Burnett v Westminster Bank [10] where the court held that a front cover of a cheque book was not deemed a contractual document.

Splosh Ltd would have to prove that the small slip of paper stapled to the document incorporated with the exclusion clauses is brought to Victoria’s attention. If Victoria has not been made sufficiently aware of the clause she may not be bound by it. Thus if Splosh Ltd wishes to rely on the clause, they must take reasonable steps to bring it to the attention of Victoria, however, what amounts to reasonable is a question of objective fact.

INCORPORATED INTO CONTRACT /

Although it can be argued that it would be reasonable to assume that the terms and conditions handed to Victoria, include the exclusion clauses thus actual notice is not required as held in Thompson v LMS Railway Co. [11] 

Splosh Ltd has not made it clear and prominent to Victoria that there are exceptions to any breach they may be liable for.

Even if an exemption clause satisfies the above test and thus appears to have been successfully incorporated into a contract. It does not necessarily mean that it will operate successfully, The clause might fail on a construction of the contract as a whole. The contra proferentem rule is a device that can be applied whenever a contract contains ambiguities. The basic principle is that if a party wishes to secure an exclusion from liability, the clause must be specific to the circumstance, if the clause is in any way ambiguous then the ambiguity is said to work in the favour of the other party or the clause will fail. As seen in Houghton v Trafalgar Insurance. [12] Following the Court of Appeals decision in White v John Warwick [13] it may be adequate to say that the ambiguous wording of the clause would successfully defend Splosh Ltd from their strict contractual liability, however this would not exempt liability for any negligence act and injury caused against Victoria.

Splosh Ltd have also included within their clause that they will not be responsible for ‘any loss’. The Court may consider this to be contra proferentem as they are trying to exclude all types of loss without being specific as to their cause Price v Union Lighterage Co. [14] The clauses make no express reference to negligence and as such they will be clearly construed against Splosh Ltd. following the test laid down by Lord Morton in Canada Steam Ship Lines Ltd v The King. [15] 

An exclusion clause is a term in a contract that seeks to restrict the rights of the parties to the contract. Exclusion clauses generally fall into one of these categories:

True exclusion clause: The clause recognises a potential breach of the contract, and then excuses liability for the breach. Alternatively, the clause is constructed in such a way it only includes reasonable care to perform duties on one of the parties.

Limitation clause: The clause places a limit on the amount that can be claimed for a breach of contract, regardless of the actual loss.

Time limitation: The clause states that an action for a claim must be commenced within a certain period of time or the cause of action becomes extinguished.

Traditionally, the courts have sought to limit the operation of exclusion clauses. In addition to numerous common law rules limiting their operation, in England and Wales, the main statutory interventions are the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999, which unlike the common law rules, do differentiate between contracts between businesses and contracts between business and consumer, so the law seems to explicitly recognize the greater possibility of exploitation of the consumer by businesses.

The courts have traditionally held that exclusion clauses only operate if they are actually part of the contract. There seem to be three methods of incorporation:

Incorporation by signature: according to L'Estrange v Graucob [1934] 2 KB 394, if the clause is written on a document which has been signed by all parties, then it is part of the contract.

Incorporation by notice: the general rule is that an exclusion clause will have been incorporated into the contract if the person relying on it took reasonable steps to draw it to the other parties' attention. Thornton v Shoe Lane Parking [1971] 2 WLR 585, seems to indicate that the wider the clause, the more the party relying on it will have had to have done to bring it to the other parties' attention.

Incorporation by previous course of dealings: according to McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125, terms (including exclusion clauses) may be incorporated into a contract if course of dealings between the parties were "regular and consistent". What this means usually depends on the facts, however, the courts have indicated that equality of bargaining power between the parties may be taken into account.

For an exclusion clause to operate, it must cover the breach (assuming there actually is a breach of contract). If there is, then the type of liability arising is also important. Generally, there are two varieties of liability: strict liability (liability arising due to a state of affairs without the party at breach necessarily being at fault) and liability for negligence (liability arising due to fault).

The courts have a tendency of requiring the party relying on the clause to have drafted it properly so that it exempts them from the liability arising, and if any ambiguity is present, the courts usually interpret it strictly against the party relying on the clause.

As espoused in Darlington Future Ltd v. Delcon Australia Pty Ltd (1986) 161 CLR 500, the meaning of an exclusion clause is construed in its ordinary and natural meaning in the context. Although we construe the meaning much like any other ordinary clause in the contract, we need to examine the clause in light of the contract as a whole.

However, if after construing the contract in its ordinary and natural meaning, there is still ambiguity in the exclusion clause, the contra proferentem rule shall apply; that is to say, the clause is construed against the person trying to take advantage of the rule.

In terms of negligence, the courts have taken the approach that it is unlikely that someone would enter into a contract that allows the other party to evade fault based liability. As a result, if a party wishes exempt his liability for negligence, he must make sure that the other parties understand that. The decision in Canada SS Lines Ltd v. The King [1952] AC 192 held that:

If the exclusion clauses mention "negligence" explicitly, then liability for negligence is excluded.

If "negligence" is not mentioned, then liability for negligence is excluded only if the words used in the exclusion clause are wide enough to exclude liability for negligence. If there is any ambiguity, then the contra proferentem rule applies.

If a claim on another basis can be made, then liability for negligence is not covered by the exclusion clause.

In Australia, the four corners rule has been adopted in preference over the idea of a fundamental breach (The Council of the City of Sydney v. West (1965) 114 CLR 481). The court will presume that parties to a contract will not exclude liability for losses arising from acts not authorised under the contract. However, if acts of negligence occur during authorised acts, then the exclusion clauses shall still apply.

If the contract is for the carriage of goods, if the path is deviated from what was agreed, any exclusion clauses no longer apply.