Contract | Formation
Exemption Clauses: Incorporation
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Introduction
Exemption clauses seek to limit (limitation clause) or exclude (exclusion clause) liability if a breach of contract or a tort has occurred. An alternative view, put forward by Professor Coote, is that exemption clauses simply define the obligations of the parties. However, the courts do not adopt this approach instead they regard exemption clauses as a defence not a definition of obligations.
Exemption clauses are only effective if the common law rules of incorporation and construction are satisfied and it is not contrary to any statutory provisions. Incorporation means that the clause must be part of the contract and construction refers to the necessity for the clause to cover the breach in question.
Nature of documentation
The exemption clause must be contained in a document which is contractual in nature. The nature of a document is determined by an objective test: whether a reasonable person would assume the document contained the terms and conditions. It is not relevant if the person receiving the document thought otherwise.
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Chapelton v Barry Urban District Council [1940] 1 KB 532
Facts:
The plaintiff hired a deckchair from the defendant. The plaintiff read the sign detailing the cost of hire, as instructed he took a deckchair from the pile and then paid the attendant, who gave him a ticket in return. The ticket contained a clause attempting to exempt the council from liability for any damage arising from the deckchair hire. The plaintiff was injured when he sat on the broken deckchair.
Issue:
Was the ticket contractual in nature?
Held:
The ticket was not contractual in nature as a reasonable person would think it was simply a receipt or voucher. The exemption clause had not been incorporated.
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Grogan v Robin Meredith Plant Hire [1996] CLC 1127
Auld LJ: A timesheet is an administrative document and a reasonable person would not expect it to contain contractual conditions. It is a record of the performance of an existing contractual obligation. The circumstances surrounding the document's use by the and the parties' understanding of its purpose should be considered.
Incorporation by signature
An exemption clause may be incorporated by signature. Only the signature of the innocent party is required.
L'Estrange v Graucob Ltd [1934] 2 KB 394
Facts:
The plaintiff was buying a cigarette machine from the defendant. The plaintiff signed a Sales Agreement which stated she was paying for the machine by instalments: .. which I agree to purchase from you on the terms stated below...
. An exemption clause was in small but legible print on the document signed by the plaintiff. The plaintiff did not read the document. The machine broke. The plaintiff refused to pay any further instalments and brought an action for the money paid. The defendant argued that the clause exempted liability.
Issue:
Was the exemption clause incorporated?
Held:
On appeal, it was found that the exemption clause was incorporated because the plaintiff had signed the 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...
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Exceptions
An innocent party may not be bound by his signature if there was a misrepresentation about the exemption clause, the document was not contractual in nature or the exemption clause was not legible.
Curtis v Chemical Cleaning & Dyeing Co. [1951] 1 KB 805
Facts:
The plaintiff took a wedding dress to the defendant, a dry cleaners, to be cleaned. The defendant asked the plaintiff to sign a document headed Receipt
. On being asked, the defendant informed the plaintiff that her signature was required because the shop would not accept liability for certain specified risks, including damage to the beads and sequins on the dress. The plaintiff signed. In fact the receipt contained an exemption clause: This... article is accepted on condition that the company is not liable for any damage howsoever arising...
. The dress was stained during the dry cleaning, the plaintiff claimed the defendant had been negligent and sued for damages. The defendant sought to rely on the exemption clause.
Issue:
Was the exemption clause incorporated?
Held:
The clause was not incorporated as the there had been a misrepresentation about the exemption clause contained in the document.
Denning LJ: .. If the party affected signs a written document, knowing it to be a contract which governs the relations between them, 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...
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Incorporation by notice
Issues can arise when a term has not been incorporated by a signature. For an exemption clause to be incorporated the innocent party must have either known that the clause existed or the party relying on the clause must have taken reasonable steps to bring it to the other's notice before the contract was finalised.
Parker v South Eastern Railway (1877) 2 CPD 416
Facts:
The plaintiff left his bag in the luggage room at the defendants' railway station. The plaintiff was given a ticket which read See back
. On the back were a number of terms, including: The company will not be responsible for any package exceeding the value of £10
. The plaintiff's bag was lost and he claimed damages of £24 10s, the value of his bag. The defendants argued that their liability was limited by the exemption clause.
Issue:
Was the exemption clause incorporated in the unsigned document?
Held:
The Court of Appeal found that is was sufficient if the party seeking to rely on the exemption clause had taken reasonable steps to draw the clause to the other's attention.
In order to establish if reasonable steps have been taken the court will consider the position of the clause on the document, its prominence and whether it is of an unusual or onerous type or nature. In certain situations where exemption clauses are expected, handing the document over will be enough to amount to reasonable steps. The document may not even contain the exemption clause but refer to a standard set of terms and conditions, for example on a bus ticket. The exemption clauses will probably be valid incorporated, if the terms and conditions are what you might expect to find in a bus travel contract.
Onerous or unusual clause
More must be done to draw a person's attention to a more onerous or unusual clause.
Spurling Ltd v. Bradshaw [1956] 1 WLR 461
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..
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Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163
Facts:
The plaintiff was negligently injured in the defendant's car park. On entering the car park, the plaintiff put money in a machine and was given a ticket. The ticket stated the contract of parking was subject to terms and conditions displayed on signs inside the car park. These included a term which excluded liability for personal injuries arising through negligence.
Issue:
Was the exemption clause incorporated?
Held:
The clause was not incorporated as the defendant had not been given sufficient notice. The clause was onerous as it attempted to exclude liability for damage to a vehicle in addition to personal injury, an element which was unusual for a car park.
Denning LJ:
.. [the plaintiff] did not know of the condition, and the company did not do what was reasonably sufficient to give him notice of it...
.Lord Megaw:
.. where the particular condition relied on involves 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...
.He continued:
.. before it can be said that a condition... restrictive of statutory rights, has been fairly brought to the notice of a party to a contract there must be some clear indication which would lead an ordinary sensible person to realise, at or before the time of making the contract, that a term of that sort, relating to personal injury, was sought to be included. I certainly would not accept that the position has been reached today...
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The reasonable steps criteria applies to all terms, not only exemption clauses.
Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433
Facts:
The plaintiff, a library, delivered 47 photographic transparencies to the defendant. The defendant planned to use them in a presentation but did not do so. The defendant did not open the package or read the plaintiff's standard terms and conditions, enclosed in the package. Condition 2 stated that there was a holding fee of £5 plus VAT per day for each transparency retained over fourteen days. The plaintiff invoiced the defendant for £3 783.50.
Issue:
Was the holding fee term incorporated?
Held:
The term was not incorporated, it was onerous because it was such a high rate. Reasonable steps must be taken to highlight parties to any onerous terms and nothing had been done to draw the term to the defendant's notice.
Dillon LJ: .. In the ticket cases the courts held that the common law required that reasonable steps be taken to draw the other parties' attention to the printed conditions or they would not be part of the contract. It is in my judgment a logical development of the common law into modern conditions that it should be held, as it was in Thornton v Shoe Lane Parking, that, if one condition in a set of printed conditions is particularly onerous or unusual, the party seeking to enforce it must show that that particular condition was fairly brought to the attention of the other party... In the present case, nothing whatever was done by the plaintiffs to draw the defendants' attention particularly to condition 2; it was merely one of four columns' width of conditions printed across the foot of the delivery note. Consequently condition 2 never, in my judgment, became part of the contract between the parties...
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There is debate some whether requiring more to be done to draw attention to onerous clauses is fair. Although it is an established requirement.
AEG (UK) Ltd v Logic Resources Ltd [1996] CLC 265
A majority of the Court of Appeal found that insufficient steps had been taken to draw attention to an onerous clause.
Hobhouse LJ (dissenting): Criticised requiring greater steps to incorporate onerous clauses as it creates uncertainty in the law. He argued that unreasonable clauses should be dealt with under the Unfair Contract Terms Act 1977. Therefore, the test for incorporating terms should be the same regardless of the nature of the clause.
Timing
The general rule is that the party seeking to rely on the exemption clause must take reasonable steps to draw it to the other party's attention before the contract is finalised.
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Olley v Marlborough Court Ltd [1949] 1 KB 532
Facts:
The plaintiff was staying in the defendant's hotel. The plaintiff's fur coat was stolen from her room. There was a notice displayed on the bedroom:
The proprietors will not hold themselves responsible for articles lost or stolen, unless handed to the manageress for safe custody
. The plaintiff claimed damages, arguing that the exemption clause was not incorporated into the contract.Issue:
Was the exemption clause incorporated?
Held:
The exemption clause was not incorporated as notice was given after the contract had been formed.
Denning LJ:
.. Now people who rely on a contract to exempt themselves from their common law liability must prove that contract strictly. Not only must the terms of the contract be clearly proved, but also the intention to create legal relations - the intention to be legally bound - must also be clearly proved. The best way of proving it is by a written document signed by the party to be bound. Another way is by handing him before or at the time of the contract a written notice specifying its terms and making it clear to him that the contract is on those terms. A prominent public notice which is plain for him to see when he makes the contract or an express oral stipulation would, no doubt, have the same effect. But nothing short of one of these three ways will suffice. It has been held that mere notices put on receipts for money do not make a contract...
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Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163
Facts:
The plaintiff was negligently injured in the defendant's car park. The notice outside the car park exempted liability for damage to cars within the car park. On entering the car park, the plaintiff put money in a machine and was given a ticket. The ticket stated the contract of parking was subject to terms and conditions displayed on signs inside the car park. These included a term which excluded liability for personal injuries arising through negligence.
Issue:
Was the exemption clause inside the car park incorporated?
Held:
The clause was not incorporated as the defendant had not been given sufficient notice before agreeing to the contract.
Denning LJ:
.. None of those cases has any application to a ticket which is issued by an automatic machine. The customer pays his money and gets a ticket. He cannot refuse it. He cannot get his money back. He may protest to the machine, even swear at it. But it will remain unmoved. He is committed beyond recall. He was committed at the very moment when he put his money into the machine. The contract was concluded at that time. It can be translated into offer and acceptance in this way: the offer is made when the proprietor of the machine holds it out as being ready to receive the money. The acceptance takes place when the customer puts his money into the slot. The terms of the offer are contained in the notice placed on or near the machine stating what is offered for the money. The customer is bound by those terms as long as they are sufficiently brought to his notice before-hand, but not otherwise. He is not bound by the terms printed on the ticket if they differ from the notice, because the ticket comes too late...
.Sir Gordon Willmer argued that there was a distinction between tickets sold by a person and those obtained from a machine. He argued that the sale by automatic machine was irrevocable so there was opportunity for the plaintiff to refuse to accept the terms.
Previous consistent course of dealing
If reasonable steps have been taken before the contract is formed previous dealings between the parties are irrelevant. However, where a previous consistent course of dealing exists between the parties, an exemption clause may be incorporated even if the reasonable steps are only taken after the contract has been finalised.
Kendall (Henry) & Sons v Lillico & Sons [1969] 2 AC 31
Facts:
The plaintiff, a farmer, had bought animal feed from the defendant for three years, making approximately three purchases per month. After the contract was formed a sale note would be sent to the plaintiff, which contained the exemption clauses. The plaintiff had not read the exemption clauses. There was a problem with the supply and the plaintiff sued. The defendant sought to rely on the exemption clauses.
Issue:
Were the exemption clauses incorporated?
Held:
The exemption clause was incorporated because there had been a consistent course of dealings between the parties.
There must be a sufficient number of regular dealings in order for a course of dealings to be found between the parties.
Hollier v Rambler Motors [1972] 2 QB 71
Facts:
The plaintiff's car was damaged by a fire at the defendant's garage. There was an exemption clause contained in the invoice: .. The company is not responsible for damage caused by fire to customers' cars on the premises...
. The defendant argued the exemption clause was incorporated as the plaintiff had used the garage three or four times over the past five years, which amounted to a course of dealings.
Issue:
Was there a sufficient course of dealings between the parties to incorporate the exemption clause?
Held:
The exemption clause was not incorporated as the plaintiff had used the garage too infrequently for there to be a course of dealings.
The course of dealings must also be consistent.
McCutcheon v MacBrayne Ltd [1964] 1 WLR 125
Facts:
The plaintiff's car was damaged during transportation on the defendant's ferry. The plaintiff had used the ferry service on several occasions. The plaintiff usually signed a form which included a clause exempting liability for damage to the vehicle. However, on this occasion he had not signed. The defendant sought to rely on the exemption clause due to consistent previous dealings.
Issue:
Was there a consistent course of dealings?
Held:
The House of Lords found that the exemption clause was not incorporated because it was inconsistent whether the document had been signed.