Exemption/Exclusion Clauses in Contracts

Exemption/Exclusion Clauses

• A clause in a contract may exclude or limit one party's liability for breach or negligence.
• An exclusion clause is a clause that negates or modifies a contractual obligation, affecting the nature and scope of a party's performance.
• Three types of clauses are used to restrict or limit liability:
  • Clauses that limit liability to cases of willful neglect or default.
  • Clauses that exclude specific liabilities, such as a breach of contract, that would have been actionable.
  • Clauses that limit the amount of damages.

Valid Exclusion Clause? Judicial Control

• Two steps are used to determine if an exemption clause is fair and reasonable:
  • Incorporation: The person relying on the exclusion clause must show it formed part of the contract.
  • Interpretation: The court will examine whether the clause is fair and reasonable and covers the breach that occurred.

Incorporation

• A clause may be incorporated into a contract in several ways: Signature, Notice or Course of dealing.
• The court needs to be satisfied that the document containing the clause forms an integral part of the contract.
• Signed Documents: Signed documents automatically form part of the contract even if the party has not read or understood the document. Cases like L'Estrange v Graucob (1934) exemplify the effect of signatures.
• Unsigned documents/By Notice: The clause must be made known to the party before the contract is formed. Reasonable and sufficient notice of the exclusion clause should be provided.
• Valid cases include: Parker v SE Railway Co (1877) and Chappleton v Barry UDC (1940); showing that mere receipt of a document was not enough and reasonable notice of the terms is needed for valid incorporation. Thornton v Shoe Lane Parking Co Ltd (1971) exemplifies a valid notice issued post-contract
• Prior consistent course of dealing is essential, with cases such as McCutcheon v Macbrayne (1964) highlighting in-consistency can mean the clause isn't incorporated.
• Inconsistency in the course of dealing may invalidate the clause.
• A signed document might be wholly or partially ineffective if the other party has made a misrepresentation about its effect. Case example: Curtis v Chemical Cleaning Co (1951) where misrepresentation invalidated the clause.

Interpretation

• Once a clause is incorporated, the whole contract is interpreted to see if the clause is fair, and reasonable, and covers the breach.

Plain and Ordinary Meaning

• A court interprets exclusion clauses using their plain, ordinary, and natural meaning.
• The grammatical meaning of the words in the clause will be used as a guide, as seen in the case of Lovel & Xmas Ltd v Wall (1911).

Contra Proferentem Rule

• If the clause has ambiguity or uncertainty, the court will interpret it in a way that is less advantageous to the party relying on the clause (the party who inserted the clause into the contract).
• Lord Wilberforce, in Ailsa Craig Fishing Co v Malvern Fishing Co, highlighted the importance of clarity, unambiguous phrasing of clauses, and examining the whole contract to understand the clause's application and meaning.

Fundamental Breach

• Liability for fundamental breaches of contract cannot be excluded, regardless of how the clause is worded.

Exclusion Clauses & Statutory Protection

• The Sale of Goods Act 1957 (SOGA 1957) typically affords limited protection to buyers concerning the implied terms and conditions in a contract. Section 62 of SOGA 1957.
• Specific legislation can protect hirers, such as the Hire Purchase Act 1967; or Consumer Protection laws such as s 24D (1) amending Act 2010.

Negligence and Exclusion Clauses

• Very clear words are needed to exclude liability for negligence in a contract.
• If a clause does not specifically exclude liability for negligence, it is likely to be ineffective. Examples include cases like White v John Warwick (1953) and Hollier v Rambler Motors (1972).
• Malaysian position: strict attitude towards negligence in exclusion clauses (Chin Hooi Nan v Comprehensive Auto Restoration Service Sdn Bhd [1995]) and related statutory law

Other aspects/cases

• The issue of reasonable notice of the exclusion clause is a question of fact. (Thornton v Shoe Lane Parking)

• The party relying on the clause can't deny knowledge—it must be brought to the attention of the other party before or at the time of contract formation (Olley v Marlborough Court).

• Cases like Baldry v Marshall highlight the importance of a clause clearly stating if it excludes liability for breach of fitness for purpose(s).

• Additional Cases Mentioned:*

• Thornton v Shoe Lane Parking Ltd

• Interfoto Picture Library v Stiletto Visual Programmes

• Thompson v LMS Railway

• Sanggaralingam Arumugam v Wong Kook Wah

• CF Malaysia Airlines System v Malini Nathan

• Ailsa Craig Fishing Co v Malvern Fishing Co

• Jackson's Malaya Bhd v Penang Port Commission

• Port Swettenham Authority v T.W. Wu and Company

• Cimb Bank Bhd v Anthony Lawrence Bourke and Anor

This quiz focuses on exemption and exclusion clauses, which are essential components in contract law. It examines how these clauses can limit liability for breaches and the judicial control involved in determining their validity. Test your knowledge on the intricacies of these legal concepts.