02.Exemption_clauses.pdf

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Always has been disapproved by the courts
because they are are usually inserted by the
more powerful party to take advantage.
Attempts to exempt (exclusion clause) or restrict
(limitation clause) party’s liability under the contract in
the event they breach the terms of the contract
By signature
– A contract containing an exemption
clause is valid provided the injured party has signed
the contract (ticking the box also counts, called
electronic signature)
L’estrange v Graucob Ltd (1934)
By reasonable notice
– a party to the contract that
contains an exemption clause must be given
reasonable notice of the clause either before or at the
time of entering into the contract, NOT AFTER. Notice
cannot be hidden or obscured.
Thornton v Shoe Lane Parking Ltd (1971)
In the course of dealing
– even if insufficient notice
was given, the courts may still determine that the
clause is validly incorporated if the parties have had
previous dealings on a regular/consistent basis.
J Spurling Ltd v Bradshaw (1956)
The European Communities
(Unfair Terms in Consumer
Contracts) Regulations 1995
Provide protection for consumers from unfair contract terms.
Apply to contracts between businesses and consumers.
‘Unfair terms’ defined as such that cause a ‘significant imbalance
in the parties’ rights and obligations’.
Exemption
clauses
Incorporation of
exemption clauses
Legislation restricting
the use of exemption
clauses
If court determines a clause to be unfair, it will be void and
incapable of enforcement.
The presence of an unfair term does not terminate the entire
contract or give the injured party a right to terminate it.
Business dealing with a consumer cannot insert clauses exempting liability
in relation to:
• Merchantable quality
• Fitness for purpose
• Restricting liability where the goods do not match description/a sample if
sold based on the sample
In contract between two businesses exemption clauses can be inserted
provided they are both ‘fair and reasonable’. Determining this the court will
take consider the circumstances, e.g. the strength of the bargaining parties
etc. The burden of proving the reasonableness of the clause lies on the
party seeking to benefit from the clause.
The court will determine if:
• The clause is unreasonable and unenforceable
• The clause is fair and reasonable and can be enforced
An exemption clause successfully incorporated into a contract is still subject to the
following common law rules regarding its construction in order to be valid.
Contra Proferentum Rule
Where the meaning of the clause is ambiguous or unclear, the courts will adopt the
meaning that is least favourable to the party seeking to enforce the clause.
Houghton v Trafalgar Insurance Co (1954)
The Main Purpose Rule
Exemption clause cannot be used for any purpose other than its main purpose.
Purpose of this rule is to restrict the circumstances in which the rule can be applied.
Sze Hai Tong Bank Ltd v Rambler Cycle & Co Ltd (1959)
Sale of Goods and
Supply of Services
Act 1980
Construction of
exemption clauses
George Mitchell (Chesterhall) Ltd v
Finney Lock Seeds Ltd (1983)
The Fundamental Breach rule
Exemption clause will be invalid if the party seeking to enforce the clause has
committed a fundamental breach of contract. Any exemption clauses
attempting to exclude a core contractual obligation is automatically invalid.
Karsales (harrow) Ltd v Wallis (1956)

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