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Contract | Formation

Exemption Clauses: Incorporation

Revision Note | Degree

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  • exemption clauses seek to limit (limitation clause) or exclude (exclusion clause) liability if breach of contract or tort occurs
  • altenative view (Professor Coote) exemption clauses define obligations of parties
  • courts regard exemption clauses as defence not definition of obligations
  • valid exemption clauses must satisfy common law rules: incorporation(clause must be part of contract) & construction (clause covers breach)

Nature of documentation

  • exemption clause must in document which is contractual in nature, objective test: whether a reasonable person would assume the document contained terms & conditions


    • plaintiff (P) was injured after sitting on a deckchair hired from D, P took deckchair from pile & paid attendant who gave him a ticket
    • ticket contained clause attempting to exempt council from liability for damage arising from deckchair hire


    • was ticket contractual in nature?


    • ticket not contractual, a reasonable person would think it was simply a receipt or voucher so exemption clause not incorporated

    Grogan v Robin Meredith Plant Hire [1996] CLC 1127

    • Auld LJ: timesheet (administrative document), a record of the performance of an existing contractual obligation, reasonable person not expect contain contractual conditions, cirumstances surrounding document's use & parties' understanding of purpose should be considered

Incorporation by signature

  • exemption clause may be incorporated by signature, only innocent party signature required


    • P buying in instalments for cigarette machine from D
    • P signed Sales Agreement but did not read it:.. I agree to purchase from you on the terms stated below...
    • machine broke, P refused to pay & brought action for money paid, D argued exempted from liability


    • was exemption clause incorporated?


    • on appeal, iexemption clause was incorporated because P signed document
    • Scrutton LJ: .. When a document containing contractual terms is signed, then, in the absence of fraud, or, I will add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not...


  • innocent party not bound by signature if was misrepresentation about exemption clause, document not contractual in nature or exemption clause not legible

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

    • P took dress to D (dry cleaners) to be cleaned
    • D asked P to sign a Receipt, D informed P signature was required because the shop would not accept liability for specific risks (damage to beads & sequins on dress), P signed
    • receipt contained exemption clause: .. the company is not liable for any damage howsoever arising...
    • dress stained during dry cleaning, P claimed D negligent & sued for damages, D sought to rely on exemption clause
    • was exemption clause incorporated?
    • exemption clause not incorporated due to misrepresentation
    • Denning LJ: .. his signature is irrefragable evidence of his assent to the whole contract, including the exempting clauses, unless the signature is shown to be obtained by fraud or misrepresentation...

Incorporation by notice

  • where no signature, for exemption clause to be incorporated innocent party must have known existed or party relying on it must have taken reasonable steps to bring it to other's notice before contract finalised


    • P left bag in luggage room at D's railway station
    • P given ticket which read See back, on back number of terms, including: The company will not be responsible for any package exceeding the value of £10
    • P's bag was lost & he claimed damages of £24 10s, D's argued their liability was limited by exemption clause


    • was exemption clause incorporated in the unsigned document?


    • Court of Appeal found was party seeking to rely on exemption clause must take reasonable steps to draw clause to other's attention
  • reasonable steps: court will consider position of clause on document, its prominence & whether it is unusual or onerous
  • situations where exemption clauses are expected, handing document over amount to reasonable steps
  • document may not even contain exemption clause but refer to standard set of terms & conditions, valid if terms & conditions what you might expect to find in that type of contract

Onerous or unusual clause

  • more must be done to draw person's attention to onerous or unusual clause
    • Denning LJ: ..The more unreasonable a clause is, the greater the notice which must be given of it. Some clauses would need to be printed in red ink with a red hand pointing to it before the notice could be held to be sufficient..
    • P negligently injured in D's car park
    • on entering car park P put money in a machine & given a ticket, which stated contract of parking subject to terms & conditions displayed on signs inside car park: including one which excluded liability for personal injuries arising through negligence
    • was the exemption clause incorporated?
    • clause not incorporated as D not given sufficient notice, clause onerous as attempted to exclude liability for damage to vehicle & also personal injury (unusual for car park)
    • Lord Megaw: .. a sort of restriction that is not shown to be usual in that class of contract, a defendant must show that his intention to attach an unusual condition of that particular nature was fairly brought to the notice of the other party. How much is required as being... 'reasonably sufficient to give the plaintiff notice of the condition', depends upon the nature of the restrictive condition...
  • reasonable steps criteria applies to all terms, not only exemption clauses
    • P (library) delivered 47 photographic transparencies to D, D did not use them as planned,
    • D not open package or read P's standard terms & conditions (enclosed in package), including Condition 2: holding fee of £5 plus VAT per day for each transparency retained over fourteen days
    • P invoiced D for £3 783.50
    • was the holding fee term incorporated?
    • term not incorporated, due to high rate it was onerous & nothing P did nothing to draw term to D's notice
  • debate whether requiring more to be done to draw attention to onerous clauses is fair, although established requirement
    • majority of Court of Appeal found insufficient steps taken to draw attention to an onerous clause
    • Hobhouse LJ (dissenting): criticised requiring greater steps to incorporate onerous clauses as creates uncertainty, unreasonable clauses should be dealt with under Unfair Contract Terms Act 1977, test for incorporating terms should be same regardless nature of clause


  • general rule: party seeking to rely on exemption clause must take reasonable steps to draw it to other's attention before contract is finalised
    • P's fur coat stolen from room at D's hotel
    • notice displayed in bedroom: The proprietors will not hold themselves responsible for articles lost or stolen, unless handed to the manageress for safe custody
    • P claimed damages & argued exemption clause was not incorporated into contract
    • was exemption clause incorporated?
    • not incorporated as notice given after contract formed
    • P negligently injured in D's car park
    • notice outside car park exempted liability for damage to cars, on entering car park P put money in a machine & given a ticket, which stated contract of parking subject to terms & conditions displayed on signs inside car park: including one which excluded liability for personal injuries arising through negligence
    • Was the exemption clause inside the car park incorporated?
    • clause not incorporated as D not given sufficient notice before agreeing to contract
    • Sir Gordon Willmer argued: a distinction between tickets sold by person & obtained from machine, which was automatic & irrevocable

Previous consistent course of dealing

  • if reasonable steps taken before contract formed previous dealings between parties irrelevant
  • however, if previous consistent course of dealing between parties an exemption clause may be incorporated, even if reasonable steps taken after contract finalised


    • P bought animal feed from D for three years, making three purchases per month
    • each time after contract formed, sale note sent to P, containing exemption clauses
    • problem with supply & P sued, D sought to rely on exemption clauses


    • were exemption clauses incorporated?


    • exemption clause incorporated, because consistent course of dealings between parties
  • must be sufficient number of regular dealings


    • P's car damaged by fire at D's garage
    • exemption clause contained in invoice: .. not responsible for damage caused by fire to customers' cars on the premises...
    • D argued exemption clause incorporated as P used garage three or four times over past five years


    • was there course of dealings between the parties?


    • exemption clause not incorporated as P used garage too infrequently for course of dealings
  • course of dealings must be consistent


    • P's car damaged during transportation on D's ferry, P used ferry on several occasions
    • P usually signed form, including clause exempting liability for damage to vehicle but this time he had not signed
    • D sought to rely on exemption clause due to consistent previous dealings


    • was there a consistent course of dealings?


    • House of Lords found exemption clause not incorporated because it was inconsistent whether document had been signed
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