Contract: Exclusion Clauses

Unfair Contract Terms Act 1977

L’Estrange v Graucob [1934] 2 KB 394 – it was held that despite the print of the contract being tiny and difficult to read, because it had been signed it was still enforceable and the exclusion clause that it contained still had to be incorporated. LJ Scrutton said that the question of ‘notice’ was irrelevant in such cases. Scrutton states that where the contract is in a train ticket or other unsigned documents, it must be shown that the party privy to that contract could reasonably have been aware of the terms and conditions. However, where a document has been signed, it is not necessary to prove that said party is aware of the terms, even if they include some form of fraud or misrepresentation.

The only exception to this strict rule is where the signature is the result of fraud or misrepresentation. Curtis v Chemical Cleaning and Dyeing Co Ltd [1951] 1 KB 805 is a case where the plaintiff took a dress to the dry cleaners. She was asked to sign a receipt on which there was a very wide exclusion clause. The plaintiff asked the assistant what this meant and was told that the dry cleaners would not be liable for any damage done to the beads or sequins on the dress – the plaintiff signed the contract. When the dress was later returned, it had a stain on it, and the dry cleaners used the exclusion clause to cover themselves but it was deemed by the court that the misrepresentation of the assistant had overridden whatever the clause said as those words were ultimately the reason the contract had been signed.

Non est factum – an argument that the party signing made a fundamental mistake about the nature of the document. This argument is rarely successful but it’s taken as conclusive evidence that when a party signs a document they are agreeing to the contract and all its terms.

In the case of contracts which are not signed, the courts have to examine what type of document it is contained in, as well as the reason for the clause, the steps that were taken to draw attention to it and its general nature. The following matters will be considered in turn:

-          Time: The party, who is affected by the clause, must have knowledge of said clause at the time the contact was entered into. OLLEY v MARLBOROUGH COURT HOTEL [1949]

-          Previous course of dealings: There may be an implied knowledge of the clause where there has been previous consistent course of conduct. KENDALL & SONS v LILLICO & SONS LTD [1969]

-          Unusual exclusions: Greater notice is required for unusual exclusion clauses. SPURLING v BRADSHAW [1956]

-          Reasonable Notice: What is reasonable as regards the ordinary adult individual, capable of reading English. PARKER v SOUTH EASTERN RAILWAY [1877]

-          Contractual document: The item in which said exclusion clauses are contained, must be regarded as a contractual document. CHAPELTON v BARRY UDC [1940]

Construction – once it has been decided that an exclusion clause exists within a contract, the courts must then decide whether that clause covers the breach that has occurred. The clause is being ‘constructed’ or ‘interpreted’ to determine its scope.

Contra proferentem rule – an exclusion clause that is ambiguous will be construed against the interests of the party who imposed that clause.

Difficulty is caused where the defendant seeks to exclude liability for negligence in the performance of a contract. Hollier v Rambler Motors [1972]. The plaintiff’s car was at the defendant’s premises when it was damaged by fire, caused by the defendant’s negligence. There was a clause in the contract which stated ‘The company is not responsible for damage caused by fire to customer’s cars on the premises.’ The court held that if the defendant’s wanted to exclude liability for his own negligence, then this should have been done explicitly. Customers would not ordinarily assume that the car company would cause such fires.

Fundamental Breach – some breaches in contract are so serious that no exclusion clause can cover them. 

This is the DOCTRINE OF FUNDAMENTAL BREACH. Two forms:

1. Fundamental TERMS - certain terms are so fundamental that there cannot be exclusion for breach of them. For example if the contract was for the sale of peas and beans were provided instead; or if coal was provided instead of potatoes. This deviation from the basic contractual obligation means that exclusion clauses should not be allowed to cover them as to do so would make a mockery of the concept. These are fundamental terms which must be adhered to.

2. Overall Effects – exclusion clauses cannot apply if the breach was serious enough to destroy the entire contract. Karsales v Wallis [1956] 2 All ER 866 was about the supply of a car which when inspected by the plaintiff was in good condition but when arrived had many faults and was in a non-driveable state and had to be towed. The defendant’s relied on a clause which said that the owner did not tell or imply the condition, warranty, roadworthiness, age etc. However the courts said that since the defendant’s performance was not one that could have been contemplated by the contract, there was a breach of a fundamental term and therefore exclusion clauses were not applicable.