Exemption Clauses – Common Law Control

Definition

Exemption Clause

• A contractual term that seeks to:
  • Exclude liability.
  • Restrict liability.
  • Limit liability.
  • Exclude remedies.

Common Law Controls

Before considering statutory controls, courts examine:

• Incorporation.
• Construction.
• Contra proferentem interpretation.

Examination Structure

1. Has the clause been incorporated?
2. Does the clause cover the breach?
3. Apply contra proferentem where ambiguity exists.
4. Consider statutory controls separately.

Incorporation by Signature

L’Estrange v Graucob Ltd [1934] 2 KB 394

Facts

• Mrs L’Estrange purchased a cigarette vending machine.
• She signed a sales agreement.
• Agreement contained an exclusion clause.
• Machine proved defective.
• Buyer argued she had not read the clause.

Judgment

• Clause incorporated.

Legal Principle

• A person signing a contractual document is bound by its contents whether they have read it or not.

Application

• Leading authority on incorporation by signature.
• First case cited whenever a signed document exists.

Curtis v Chemical Cleaning & Dyeing Co Ltd [1951] 1 KB 805

Facts

• Customer signed a receipt before leaving a wedding dress for cleaning.
• Assistant stated clause only covered damage to beads and sequins.
• Clause actually excluded much wider liability.
• Dress damaged.

Judgment

• Clause not incorporated.

Legal Principle

• Misrepresentation concerning the meaning or effect of a clause prevents incorporation.

Application

• Major exception to L’Estrange.

Saunders v Anglia Building Society (Gallie v Lee) [1971] AC 1004

Facts

• Elderly woman signed a document believing it was something entirely different.

Judgment

• Signature remained effective.

Legal Principle

• Non est factum available only in exceptional circumstances.

Application

• Demonstrates courts’ reluctance to allow escape from signed contracts.

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Incorporation by Reasonable Notice

Parker v South Eastern Railway Co (1877) 2 CPD 416

Facts

• Passenger deposited luggage.
• Ticket contained exclusion clause.
• Passenger did not read the clause.

Judgment

• Clause could be incorporated if reasonable notice was given.

Legal Principle

• Party relying upon a clause must take reasonable steps to bring it to the other party’s attention.

Test Established

Did the party:

• Know of the clause; or
• Receive reasonable notice of its existence?

Application

• Leading authority on reasonable notice.

Thompson v London, Midland and Scottish Railway Co [1930] 1 KB 41

Facts

• Illiterate passenger purchased railway ticket.
• Ticket referred to conditions in a timetable.

Judgment

• Clause incorporated.

Legal Principle

• Actual knowledge unnecessary.
• Reasonable notice sufficient.

Application

• Demonstrates objective approach.

Richardson, Spence & Co Ltd v Rowntree [1894] AC 217

Facts

• Steamship ticket contained exclusion clause.
• Clause hidden among numerous terms.

Judgment

• Clause not incorporated.

Legal Principle

• Notice must be sufficient and reasonably communicated.

Application

• Important limitation on Parker.

Hood v Anchor Line (Henderson Brothers) Ltd [1918] AC 837

Facts

• Passenger ticket contained conditions restricting liability.

Judgment

• Clause incorporated.

Legal Principle

• Reasonable notice of conditions sufficient.

Application

• Supports Parker principle.

Timing of Notice

Olley v Marlborough Court Ltd [1949] 1 KB 532

Facts

• Couple checked into hotel.
• Exemption clause displayed inside bedroom.
• Property stolen.

Judgment

• Clause not incorporated.

Legal Principle

• Notice must be given before or at the time of contracting.

Application

• Leading authority on timing.

Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163

Facts

• Driver entered automated car park.
• Ticket issued by machine.
• Exemption clause displayed inside premises.

Judgment

• Clause not incorporated.

Legal Principle

• Contract concluded when ticket issued.
• Later notice ineffective.

Application

• Leading authority concerning automated contracts.

Chapelton v Barry Urban District Council [1940] 1 KB 532

Facts

• Customer hired deckchair.
• Received ticket after payment.
• Ticket contained exclusion clause.

Judgment

• Clause not incorporated.

Legal Principle

• Clause communicated after contract formation ineffective.

Application

• Frequently examined alongside Olley.

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Particularly Onerous Clauses

Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163

Additional Principle

• Particularly unusual or onerous clauses require especially clear notice.

Lord Denning’s Principle

• Some clauses would need to be printed in red ink with a red hand pointing towards them.

Application

• Greater burden on party seeking reliance.

Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433

Facts

• Photographic transparencies supplied.
• Contract contained extremely high holding fee.
• Fee not specifically highlighted.

Judgment

• Clause not incorporated.

Legal Principle

• Onerous or unusual terms require special notice.

Application

• Leading modern authority on onerous clauses.

Previous Course of Dealings

McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125

Facts

• Parties had contracted previously.
• Exemption clause used inconsistently.

Judgment

• Clause not incorporated.

Legal Principle

• Previous dealings must be regular and consistent.

Application

• Important authority limiting reliance on past dealings.

Henry Kendall Ltd v William Lillico Ltd [1969] 2 AC 31

Facts

• Numerous contracts conducted over several years.
• Exemption clauses regularly used.

Judgment

• Clause incorporated.

Legal Principle

• Regular and consistent dealings may incorporate terms.

Application

• Leading authority supporting incorporation through prior dealings.

Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71

Facts

• Customer used garage three or four times over five years.
• Garage relied upon exclusion clause.

Judgment

• Clause not incorporated.

Legal Principle

• Occasional dealings insufficient.

Application

• Frequently cited examination authority.

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The Contra Proferentem Rule

Definition

Legal Rule

• Ambiguous exemption clauses are interpreted against the party seeking to rely upon them.

Meaning of “Proferens”

• The party putting forward or relying upon the clause.

Purpose

• Protect weaker contracting parties.
• Prevent unfair exploitation through unclear drafting.

Leading Authority

Houghton v Trafalgar Insurance Co Ltd [1954] 1 QB 247

Facts

• Insurance policy excluded liability where vehicle carried an excessive number of passengers.
• Ambiguity existed concerning wording.

Judgment

• Ambiguity interpreted against insurer.

Legal Principle

• Ambiguous clauses construed against the proferens.

Application

• Classic contra proferentem authority.

Andrews Bros (Bournemouth) Ltd v Singer & Co Ltd [1934] 1 KB 17

Facts

• Seller attempted to rely on exclusion clause.
• Clause ambiguous.

Judgment

• Clause interpreted narrowly.

Legal Principle

• Exclusion clauses interpreted strictly against party relying on them.

Application

• Important authority on strict construction.

White v John Warwick & Co Ltd [1953] 1 WLR 1285

Facts

• Bicycle hired.
• Defective maintenance caused injury.
• Company relied upon exemption clause.

Judgment

• Clause failed to exclude negligence liability.

Legal Principle

• Ambiguous clauses do not exclude negligence unless wording clearly does so.

Application

• Frequently cited in negligence questions.

Negligence and Contra Proferentem

Canada Steamship Lines Ltd v The King [1952] AC 192

Facts

• Damage caused through negligence.
• Exemption clause relied upon.

Judgment

• House of Lords established guidelines.

Legal Principle

Step 1

• Does clause expressly mention negligence?

If yes:

• Negligence liability excluded.

Step 2

• If not, are words wide enough to cover negligence?

Step 3

• If another possible basis of liability exists, clause interpreted against exclusion.

Application

• Most important negligence exclusion authority.

Alderslade v Hendon Laundry Ltd [1945] KB 189

Facts

• Laundry lost handkerchiefs.
• Exemption clause used broad wording.

Judgment

• Clause effective.

Legal Principle

• Where negligence is the only possible basis of liability, broad words may suffice.

Application

• Important qualification to Canada Steamship.

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Essential Examination Cases

Common Law Rules Summary

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