CONTRACT:
EXEMPTION CLAUSES
Exemption clauses purpose: to exclude (or restrict liability by limiting damages) a
parties liability for breach of contract
Is the clause valid?
1. Has the exclusion clause been incorporated into the contract?
2. Does the wording of the clause cover the breach?
3. Is the clause part or wholly excluded by statute? UCTA 1977
Common Law Rules on Incorporation
1) Is the clause incorporated as a term?
1. SIGNATURE - Is it contained in a signed contractual document?
Signature = bound to those terms – even if he’s not read them:
L’Estrange v Graucob
Exception: signature obtained as a result of fraud or misrepresentation:
Curtis v Chemical Cleaning and Dyeing Co
2. NOTICE - Has reasonable notice of the existence of the clause been given in a
contractual document – and in time? Thompson v LMS Railway
a) Is the clause contained in a contractual document? E.g. ticket or receipt
– Chapelton v Barry UDC
b) Notice must be contemporaneous – has notice of the existence of the
clause been given before or at the time of contracting? – Olley v
Marlborough Court
c) Notice must be clear – Spurling v Bradshaw: Lord Denning ‘red hand’
3. COURSE OF DEALING – Has the clause been incorporated as a result of a
consistent course of dealing including the clause between these parties?
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, If the parties have dealt with each other before the term may be
incorporated through these dealings even where the term was not
brought to the attention of the other party: Spurling v Bradshaw
Previous dealings must have been consistent, parties mus have always
contracted on the same terms: McCutcheon v MacBrayn
Terms will only be incorporated where there is a sufficient number of
transactions to amount to a course of dealings: Hollier v Rambler
Motors
4. TRADE CUSTOM – term may be incorporated where the use of such terms is
prevalent in a particular trade and both parties operate in that trade: British
Crane Hire v Ipswich Plant Hire
2) Does the wording of the clause cover the breach? (construction)
Guidelines from Canada Steamship Lines v The King, per Lord Morton
a) If the clause expressly exempts liability for negligence, effects must be given to
that provision
So are words wide enough in their ordinary meaning to cover negligence e.g.
‘any loss howsoever caused’, if not then move on…
b) Are the words wide enough given their ordinary meaning to exclude
negligence?
clear, express language exempts negligence liability, then it is valid – Monarch
Airlines v London Luton Airport
c) If the words are wide enough to cover negligence:
can damages be also based on an alternative head of damages?
In a contract, strict or contractual liability will be given preference against a
construction finding exemption of fault based liability
Strict Approach
Plain interpretation and meaning is not wider than literal meaning of words
used
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EXEMPTION CLAUSES
Exemption clauses purpose: to exclude (or restrict liability by limiting damages) a
parties liability for breach of contract
Is the clause valid?
1. Has the exclusion clause been incorporated into the contract?
2. Does the wording of the clause cover the breach?
3. Is the clause part or wholly excluded by statute? UCTA 1977
Common Law Rules on Incorporation
1) Is the clause incorporated as a term?
1. SIGNATURE - Is it contained in a signed contractual document?
Signature = bound to those terms – even if he’s not read them:
L’Estrange v Graucob
Exception: signature obtained as a result of fraud or misrepresentation:
Curtis v Chemical Cleaning and Dyeing Co
2. NOTICE - Has reasonable notice of the existence of the clause been given in a
contractual document – and in time? Thompson v LMS Railway
a) Is the clause contained in a contractual document? E.g. ticket or receipt
– Chapelton v Barry UDC
b) Notice must be contemporaneous – has notice of the existence of the
clause been given before or at the time of contracting? – Olley v
Marlborough Court
c) Notice must be clear – Spurling v Bradshaw: Lord Denning ‘red hand’
3. COURSE OF DEALING – Has the clause been incorporated as a result of a
consistent course of dealing including the clause between these parties?
Page | 1
, If the parties have dealt with each other before the term may be
incorporated through these dealings even where the term was not
brought to the attention of the other party: Spurling v Bradshaw
Previous dealings must have been consistent, parties mus have always
contracted on the same terms: McCutcheon v MacBrayn
Terms will only be incorporated where there is a sufficient number of
transactions to amount to a course of dealings: Hollier v Rambler
Motors
4. TRADE CUSTOM – term may be incorporated where the use of such terms is
prevalent in a particular trade and both parties operate in that trade: British
Crane Hire v Ipswich Plant Hire
2) Does the wording of the clause cover the breach? (construction)
Guidelines from Canada Steamship Lines v The King, per Lord Morton
a) If the clause expressly exempts liability for negligence, effects must be given to
that provision
So are words wide enough in their ordinary meaning to cover negligence e.g.
‘any loss howsoever caused’, if not then move on…
b) Are the words wide enough given their ordinary meaning to exclude
negligence?
clear, express language exempts negligence liability, then it is valid – Monarch
Airlines v London Luton Airport
c) If the words are wide enough to cover negligence:
can damages be also based on an alternative head of damages?
In a contract, strict or contractual liability will be given preference against a
construction finding exemption of fault based liability
Strict Approach
Plain interpretation and meaning is not wider than literal meaning of words
used
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