Exemption Clauses --- A Short Review

Exemption Clauses

An exemption clause is a term of contract by which one of the parties to the party attempts to avoid his liability when there is a breach of contract or negligence of his part.

Exemption clause can be incorporated with a contract is any method. However other party to the contract must notify that clauses before or at the time of making contract.

Exemption Clauses regarding third parties---

Normally according to the court rule who are not a parties ( Third parties) of a contract cannot claim any benefit from an exemption clause in that contract. Cosgrove V Horsfall. But this case decision departed Elder, Dempster & Co V Paterson Zochonis & Co. but former case departed by House Of Lords in Scruttons, Ltd V Midland Silicins Ltd. Finally  the standing decision in  nowadays is Cosgrove case.

Contra proferentum Rule, this mean the words in written document used against the party who include the words in particular contract. But this rule only applicable when in case of ambiguity or other rules construction fail. Jhone Lee ( Grantham ) Ltd V Railway Executive.

Important Note : When an exemption clause indicates “ALL” damages this would exclude liability for negligence. But the word “ANY LOSS” does not cover negligence loss but “However arising” or “Any Cause whatever” covers whole liability.

Fundamental Breach

It means certain types of breaches that totally destructive the obligations of the defaulting party in a contract in a contract, that time they cannot exclude their liability by an exemption clause. Guilty for fundamental breach of contract or a breach of a fundamental term, cannot exclude defaulting party’s liability by exemption clause. The clauses fundamental breach of contract or a breach of a fundamental term used often interchangeable a rule of law. The view was taken by some courts, which some breaches of contract are so serious that no exclusion clauses can cover them. In sea contracts the “Deviation” also consider as a fundamental breach ( Joseph Thorley Ltd V Orchis ss Co Ltd )

Fundamental Breach happens in two varies ways

01. Breach of Particular important term.

02.Breach , which had the consequences of destroying the whole basis of the contract.

Below case laws can be analyzed for the development of fundamental breach principle.

01. Karsales V Wallis (1956)

A buyer ( plaintiff ) inspect a car in good condition and make order ( Buick Car ) , but when defendant ( Seller ) delivered in night it was towed because is incapable of self-propulsion.  Almost other defects also there,

(a)    Cylinder head had been removed

(b)   The valves had been burned out

(c)     Two of the pistons were broken

But in the agreement paper contain following clause,

“NO condition or warranty that the vehicle is roadworthy or as to its age, condition or fitness for the purpose is given by the owner or implied here in”

HELD, here plaintiff expect a good (Working) condition car, but defendant gave a totally different one. It is a BREACH OF FUNDEMENTAL TERM So exemption clause cannot prevent from the liability.

02. Harbutts’ Plasticine ( 1970)

Here defendant makes a contract with plaintiff to make piping in plaintiff’s factory. But he made a unsuitable piping. In the course of action a fire accident held hence the fire destroyed plaintiff’s whole premises. It was held as a FUNDEMENTAL BREACH OF A CONTRACT. A principle derived from this case was A breach never in itself brings a contract to an end.

In above situations the injured innocent party can repudiate the whole contract or continue with the contract with damages and further expenses.

Court held in Photo Production Ltd V Securicor Transport Ltd, Certain type of fundamental breach could never be covered by an exemption clause. And affirm that, Freedom of contract approach to commercial agreement and rejection of an interventionist role of the courts. This case was noways binding authority in law. I have below listed some of cases that have used for exam purpose for citing more cases. But above three cases are the academic and procedural authority. 

01.Pinnock Bros V Lewis and peat Ltd ( 1923)

02.Glynn V Margetson & Co (1893)

03.Gibaud V Great Eastern Railway Co (1881)

04.Lilley V Doubleday (1921)

05. Hai Tong Bank Ltd V Rambler Cycle Co Ltd (1959)

In England now they have statuary provisions 

01.Unfair contract Terms Act [ UCTA  1977 ]

 This statute makes some exclusion clauses void

Eg: Exclude liability for death or personal injury caused by negligence.

Many other clauses are subject to a test of reasonableness.

Case laws give a trend to make more freedom to make exclude liability within business contract rather than with customers.

02. Unfair Terms in Consumer contracts Regulations ( UTCCR 1999 )

These regulations derive from European Directive.

They impose a requirement “Fairness” on most of the consumer protection “Good Faith” is part of the test of fairness.

UCTA 1997	UTCCR 1999
Apply business and consumer matter made a difference between them.	Applies to consumer contracts only
Covers exclusion and limitation clauses	All standard form of contracts and all Unfair terms
Test of Resonableness Sec 11	Test of Unfairness Reg-5(1)