Exemption Clauses

These are clauses that limit or exclude liability from one party to the contract. Invariably, where
parties are using standard forms in their contractual arrangements, it may be found that one party
seeks to protect themselves from the potential of liability. They do so by including exclusion
clauses within the contract. To determine whether an exclusion clause is valid and incorporated
into a contract:
- The court looks at whether the parties attended their signature to the document
- The court looks at whether the parties agreed by the inclusion of the exclusion clause or
was notified of the existence of such a clause.
- The court will also look at the course of dealings between the parties to determine
whether they had a history of contracting by the use of exclusion clauses.
Incorporating exclusion clauses into contracts by signature
The case of L’Estrange v Graucob (1934) made the point clear that parties to a contract are
bound by what they sign. This is the general principle. It is expected that when a party enters into
contractual relations, they intend to be legally bound by the terms expressly stated in the
contract. It is also expected that parties will be prudent enough to do their research and ensure
that they know the nature of what they are agreeing to before they make their signatures.
Incorporating by reasonable notice
The second requirement is that the party aggrieved by the exclusion clause must have had notice
of the existence of this clause. The court must be certain that the party knew of the contents of
the clause or had the opportunity to know of the contents of the said clause. In determining
whether the court finds that the aggrieved party had sufficient notice of the clause, they look at
the nature of the document, that is, it determines if the notice was effective and if it was intended
to have contractual effect. The court looks at the intentions of the parties to determine whether
they intended to be bound by the terms of the exclusion clause from the type of document
presented to the same courts. For example, a document such as a receipt, which does not
ordinarily form a part of the written contract but contains an exclusion clause that states that the
goods are not returnable.
In such cases, the court will have to do an investigation to determine whether the receipt or
document presented evidences an intention between the parties. See Parker v South East
Railway (1877).
The court also looks at the notice and this can be either prominently set out in the face of the
document or it can be incorporated into the document by reference to another document. See
Thompson v LMS Railway (1930).
There may be cases where the terms are unusual and may not be the ordinary type of exclusion
clause or they may be so onerous on the aggrieved party that the court may require that the
method of notice be extraordinary, for example, by having the clause printed in ‘red ink’. See
Olley v Marlborough Court (1949).
The courts also look at the time of the notice. If notice is given before the contract is made or at
the time of contracting and the aggrieved party is made aware of this exclusion clause, the courts
may find that this is sufficient and there may be now allowance for the exclusion clause to be
void.
If notice of the exclusion clause is given after, and the aggrieved party is made aware of this after
the contract has been executed, then the aggrieved party may not be bound by such clauses.
Incorporating by previous course of dealing
Parties that have been in business over time may exclude each other from liability. However,
there may invariably be situations where the parties have mutual exchanges of promises, but do
not execute a document at the time because of any possible inconvenience. In Hardwick Game
Farm v Suffolk Agricultural Poultry Producers Association, the court said that in situations
where the parties have had previous business dealings of a similar nature and there was, out of
convenience, the nonexecution of a document which contained an exclusion clause, the court
will enforce that contract even though there were no signatures to contractual documents.
The court applies contra proferentum rules to interpret the meaning of the exclusion clause. This
rule posits that the court will strictly interpret the exclusion clause against the party that owes
instigation. The courts will be very strict in reading out or interpreting the meaning of the
exclusion clause against the parties that have presented the contract. In other words, if there is
any ambiguity in the clause, the courts will tend to favour the party that is aggrieved more than
the one that instigated or encouraged the exclusion clause in the contract. See Houghton v
Trafalgar Insurance Company (1954). The intention of this rule is to place the parties on equal
footing when they are in contractual relations and to protect the injured party.
Exceptions
- Where there is a misrepresentation as to the contents of the contract, then the exclusion
clause may not hold its validity. See Curtis v Chemical Cleaning & Dyeing Company Ltd.

- Where there is an overriding undertaking, this will exclude or invalidate an exclusion

clause, but these overriding undertakings must be expressly inconsistent with the
exclusion clause that is in writing in the contract and they must be given before the
contract is executed.

- Where there is exclusion of liability for fraud and any attempt to exclude liability from
fraud by the party instigating the clause will certainly be an exclusion clause that is void.
Fraud in the performance of a contract cannot exclude liability. See Tullis v Jackson
(1892).

- Where there is an exclusion of liability for breach of fiduciary duties, see Bogg v Raper
(1998).
- Where natural justice is excluded from the contents of the contract and any provision is
void which purports to oust natural justice from a contract. See Lee v Showmen’s Guild
(1952).

- Where the clauses are generally unreasonable and unfair to the aggrieved party and the
court uses an objective test regarding this.