LPB 201 LAW OF CONTRACT

EXCLUSION CLAUSE AND LIMITING TERMS

Nature of exclusion clauses and limiting terms

Introduction
In principle, parties to contracts are free to limit or exclude the obligations
attached to their undertakings. For example, a seller of goods can exclude the
operation of all implied terms by the Sale of Goods Act by incorporating the
appropriate clause. Usually, exclusion clause and limiting terms are contained in
printed form and used for contracts of same kind. The terms used in a particular
trade or for the sale of a particular product or service will normally be the same.
The consumer has to decide whether to accept the contract as it is, or not enter
into the contract at all. These clauses are present in contracts for the supply of
electricity, for laundry and dry-cleaning, and for hotel accommodation. They are
also found in contracts for travels by sea, rail, land and air. In addition, some of
the contracts for sale of goods supplied by major suppliers also contain some
terms limiting their liability for breaches of various terms, whether express or
implied. However, given the imbalance of power, exploitation and oppression
this may inadvertently lead to, as a result of their(sellers) powerful bargaining
position, the courts have made a set of rules which have limited their(exclusion
clause and limiting terms)scope and effectiveness. In addition, legislative
intervention has become increasing important in preventing exploitation. See the
Unfair Contract Terms Act 1977(applicable in England and Wales). However,
legislative intervention was introduced in England. In Nigeria, there are no
legislative intervention regarding this matter, rather the position remains strictly
a common law one.

While exclusion clauses are potentially terms of contracts, they are different
body of law that are separated from the general principles of contracts.

It is worthy of note that the doctrine of the freedom of contract does not exist
here.

In this lesson, we shall examine exclusion(exemption) and fundamental terms.

Nature of Exclusion clauses and limiting terms

Over the years, standard form contracts have become a common knowledge.
Simply put, parties to a contract do not commonly negotiate for the terms of a
contract, rather the contractor is presented with a written document containing
the terms of a written agreement and he is requested to accept or refuse to be
bound by those terms. For example if Mr B, a prospective purchaser of a fridge
goes to a shop to buy one. It is common practice for him to be furnished with
printed documents which contain the terms of the sale and particularly those
which may exclude or limit the liabilities of D, the seller. Those terms or clauses
limiting the liability of the seller, D are called exclusion or exemption terms or
clauses. As explained by Tobi J.C.A in U.B.N Ltd v H.U. Umeh & Sons Ltd:

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 “An exemption clause in a contract confers an immunity on a party from certain
obligations. The items of exemption may be specifically mentioned or enumerated
in the contract. The contract may merely contain general exemption clause or
clauses in the event of breach or default. In either way, a Court of law is bound to
give effects to the provisions.”

The disputes regarding the validity of exemption clauses usually arises when a
party, usually the suppliers, relying on such a clause claims exemption from his
contractual liability, thereby depriving the consumer of compensation to which
he would have normally been entitled for his loss or injury arising out of
transaction. Many a time, the exemption clause will be contained in a ticket,
receipt, application form or notice which the consumer might or might not have
read. In fact, reading the document and becoming aware of the terms of contract
contained in the exemption clause may not be of any help in many cases. All
airline tickets contain clauses limiting the liability of the carrier in case of
personal injury, death or loss of property. The consumer who wishes to travel
cannot vary these terms, and since the only sensible means for travelling long
distances is by air, knowledge of the limiting terms in the airline ticket cannot
change the passenger’s condition. It could of course impel him to take out a
travel insurance policy.

In order to protect the consumer by limiting the scope of exemption clauses and
by subjecting their application to various conditions, courts have designed
separate rules in respect of documents containing exemption clauses signed by
the innocent party and those not so signed. Sometimes, the buyer is requested to
sign the documents before he takes custody of the article but sometimes he takes
possession of the article without signing the document. There may arise question
as to the legality of the unsigned or signed documents and particularly whether
the document under reference could be regarded as an integral part of the
contract. In order words, it must be established that the document purporting to
free one of the contracting parties from liabilities which he would otherwise
incur at common law was in the nature of a contract. The following section shall
discuss both versions as well as their legal implications.

Signed documents
It is a general rule that a person who signs a contractual document, in the
absence of fraud,mistake or misrepresentation , is absolutely bound by the terms
of that document. See Royal Exchange Assurance v. M Kayode (1958) W.R.N.L.R . It
is not open to him to argue that he did not understand the content of the
document or that he did not read it. The distinction between liability on signed
and liability on unsigned documents was clearly drawn in L’Estrange v.
Graucob(1934) 2K. B. 394, the proprietress of a café bought an automatic
cigarette vending machine. She signed, but did not read, a sales agreement which
contained an exemption clause “regrettably small print”.It was held that she was
bound by the clause , so that she could not rely on defects in the machine, either
as a defence to a claim for part of the price, or as entitling her to damages. It
would have made no difference had she been a foreigner who could not read
English. However, in Grogan v Robin Meredith Plant Hire, The Times, February 20,

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1996,in this case, the hirer of machine with his driver had signed weekly
timesheets, the curt held that he was not bound by terms printed on these sheets
since their purpose was merely to record the hours worked and not to vary the
terms of the early oral contract.
It is noteworthy that where the document signed does not contain the exemption
clause but however, incorporates the exemption or limiting clause in another
document. This was the case in Chagoury v Adebayo(1973) 3 U.I.LR. 532, the
plaintiff sued for 500 pounds he won in a pools stake .The defendant denied
liability on the grounds that the rules and conditions clause signed by the
plaintiff exempted him from such liability as it contained clause which entitled
the defendant to cancel any entry and refuse payment. The document signed
was, however, not the document that contained the exemption clause; it,
however, made reference to another document where the exemption clause was
spelt out. The Court made an exposition of the law in respect of signed and
unsigned document and held that where a party signed a contract which was
incorporated in conditions, he is bound.

Unsigned documents
Where, one party has not signed the document relating to the contract which
contains a limiting or excluding clause, a different consideration applies. The
commonest examples is where one buys a bus ticket for a journey and he does
not sign any document but the ticket purport to limit the liability of the transport
proprietors. The legal position of the passenger was clearly stated by Scrutton L.J
in L’ Estrange v Graucob(1934) 2K.B 394: “In cases in which the contract is
contained in a rail-way ticket or other unsigned document, it is necessary to prove
that an alleged party was aware, or ought to have been aware, of its terms and
constitutions.”

In other words, where the document is unsigned, the question that immediately
arises is whether the stipulated exclusionary terms form part of the contract. In
order to determine this point-the primary question is whether sufficient ‘notice’
of the exclusionary terms given to the contractee must first be disposed of. The
court has ben faced with crucial issue of ascertaining what exactly amounts to a
notice. What is sufficient notice to A may on similar circumstances be wholly an
inadequate notice to B, so that what constitutes a sufficient notice will vary
according to the individual the notice was given as well as the positive acts done
to effect the notice. Therefore, the issue of notice is strictly a question of fact.

Nature of notice
The notice must be adequate. In law, the notice which will afford the defendant a
defence by reason of the exclusionary or limiting terms must be shown to have
been adequately brought home to the other party. i.e it must not only be shown
that the terms were clearly stipulated in the document but the defendant must
go further to show that the attention of the complaining party was drawn to the
stipulations before the contract was concluded. If notice of the exclusionary
terms is not communicated to the other party before the contract is reached, it
will not avail the defendant since it is clearly outside the scope of the contract,
whereas, if the notice was adequately brought home to the other party, the

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parties are bound , and it is of no moment that the other part did not appreciate
the scope of the legal consequences involved therein.

In Olley v Marlborough Court Ltd(1949) 1ALL E.R 127, the plaintiff and her
husband were guests in a hotel in which they paid for a week’s boarding and
lodging in advance. When later she proceeded to her room she saw a notice
exhibited which contained the following clause: “The proprietors will not hold
themselves responsible for articles lost or stolen , unless handed to the manageress
for safe custody.” By reason of the negligence of their staff, a thief entered the
plaintiff’s room and stole her furs. In an action for the value of the furs the
defendants resisted it on the ground that the exemption clause as contained in
the exhibited notice in the bedroom formed part of the contract. But the Court of
Appeal rejected this contention on the reasoning that the plaintiff could not have
seen it until after the contract was concluded , and accordingly, held that the
defendants were liable. This case underscores that the notice of an exemption
clause must be given in good time. In addition, it demonstrates that a unilateral
imposition of a contractual term on the other party to a contract has no effect.

Notice to be reasonably sufficient

Whether notice is reasonably sufficient must be tested objectively.. In Parker v S.
E Rly Co.(1877) 2. C.P.D, 416., the plaintiff deposited a bag in a cloakroom of a
railway station owned by a defendant company. On paying 2d to the receiving
clerk he received a paper ticket on which was printed, among others. “See Back’.
On the back were printed several clauses including “The company will not be
responsible for any package exceeding the value of £10.” The bag was lost and
the plaintiff claimed £24:10:-d as the value of the bag. Pollock J. left the following
question to the jury: (1) Did the plaintiff read or was aware of the special
condition upon which the articles were deposited.(2) Was the plaintiff , under
the circumstances , under any obligation, in the exercise of reasonable and
proper caution, to read or make himself aware of the condition? The jury
answered the questions in the negative and accordingly judgment was entered
for the plaintiff. But on appeal, a new trial was ordered , for it was held that the
direction to the jury was not accurate for the plaintiff was under no obligation to
read the ticket, but the real question for this jury was simply to determine
whether the railway company did what was reasonably sufficient to give the
plaintiff notice of condition. Mellish L.J, stated the correct position of the law as
follows:

“The railway company must, however, take mankind as they find them, and if what
they do is sufficient to inform people in general that the tickets contain conditions, I
think that a particular plaintiff ought not be in a better position than other person
on account of his exceptional ignorance or stupidity or carelessness. But if what the
railway company do is not sufficient to convey to the minds of people in general
that the ticket contains conditions then they have received good on deposit
obtaining the consent of the persons depositing them to conditions limiting their
liability. (a)if the person receiving the ticket did not see or know that there was any
writing on the ticket, he is not bound by the conditions: (b)if he knew there was
writing , and knew or believed that the writing contained conditions, then he is
bound by the conditions: (c)if he knew there was writing on the ticket, but did not

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 know or believe that the writing contained conditions, nevertheless he would be
bound, if the delivering of ticket to him in such a manner that he could see there
was writing upon it, was, in the opinion of the jury, reasonable notice that the
writing conditions.”

Applying one of these tests, one finds that in Jude v Edinburgh Corp(1943)
S.C .399, it was held that a notice in a public vehicle warning passengers against
descending before the bus stops was a mere warning and not a contractual term.
See also McCutcheon v David MacBrayne, Ltd (1964) 1ALL E. R. 430;Richardson
Spence & Co. v. Rowntree, 18 (1894) A. C 217

In Hugger- Mugger, LLC v. Netsuite, IncNO. 2: 04 –CV-592, the requirements that

must be satisfied in order for a written contract to include terms posted on the
web was examined. In that case the written contract entered by the parties
referred to a term posted in the internet:
“In consideration of the license fee paid by customer {Hugger-Mugger} and subject
to the terms of this agreement and the terms posted at the www.Netsuite.com, or
successor Web site, Netsuite grants Customer, its employees, and agents a
nonexclusive, non transferrable license to use the Service for internal business
purposes…This Agreement and Incorporated Terms of Service represent the entire
agreement of the parties”

The Court ruled that the terms online was incorporated into the contract to
become part of the contract. The court set a three-part test for incorporation by
reference to documents outside the contract. The first test was the ‘clear and
unequivocal ‘ test, the second criterion was notice to the other party, and the
third test was that the incorporated term must be “known or easily available to
the contracting party.” Applying these tests the court came to the conclusion that
the language of the contract clearly identified, referred to and incorporated the
online terms which terms was available , clear and unambiguous. The court
concluded that given the circumstances Hugger-Mugger consented to the terms
incorporated. Contrast with Affinity Internet Inc v. Consolidated Credit Counselling
Services, 920 So. 2d 12869Fla Dist. Ct. 2006)

Effect of Illiteracy on the plaintiff

What is the effect of illiteracy of the party who receives a ticket or a contractual
document containing excluding or limiting terms. The same question arises
where such a document is delivered to a blind person. What will constitute
sufficient notice may sometimes be a difficult problem for the court, although the
principle seems tolerably plain. In Foster v Mackinnon (1869) 20 L.T. ,888 to
889, Byles J:

“If a blind man, or a man who cannot read , or who for some reason (not implying
negligence) forbears to read, has a written contract falsely read over to him, the
reader misreading to such a degree that the written contract is of a nature
altogether different from the contract pretended to be read from the paper which
the blind or illiterate man afterwards signs; then , at least if there be no negligence,
the signature so obtained is of no force.”

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It is respectfully submitted that a greater burden will be placed on the party
seeking to rely on the exemption clause in a situation where the blind or illiterate
person did not sign the document. In Halliday v Alapatira(1881) 1N.L.R.1, the
appellant, an illiterate, was sued by the trustee in bankruptcy of J.P.L Davies for a
sum of £724, the balance of account of goods sold and delivered. The defence
raised was a bona fide payment to the bankrupt before adjudication and without
notice of an act of bankruptcy available for adjudication. A notice of an act of
bankruptcy available for adjudication was sent to the appellant, and the only
question which the Full Court had to deal with was whether this notice was
sufficient to render the appellant liable to pay again to the trustee in bankruptcy
the money which he already paid to Mr Davies. The full Court by a majority of 2:1
held that the appeal should succeed and that the appellant was not liable. In
holding that the notice to the appellant was not a sufficient notice to make the
appellant to pay money to the trustee in bankruptcy. W.J Smith, J.said:

“The appellant is a native trader who admittedly cannot read, and it is the respondent’s
contention that the mere handling of this printed circular to a man whom he knows could
not read it without translating it to him and without one word or explanation as to what it
is , or what it meant is a sufficient notice of an act of bankruptcy…
In this contention, I am unable to concur .In my judgment the handing to a man a circular
printed in a foreign tongue without calling his attention to its contents is not a good notice
“

See also Animotu Otegbeye v Little, and Adam Lamonu v Little (1907) 1.N.L.R. 70.
(The cases were tried together for convenience).Now contrast this case with
Thompson v L.M & s Railway Company (1930) 1 K.B. 41

Note that the Thompson case is different from Alapatira case because in the
former, the printed document was given to the niece of the illiterate plaintiff.
There was no evidence that the niece was herself illiterate. It was therefore
reasonable to assume that she was in a position to read and translate the content
of the printed ticket to the plaintiff. But in the last case the document was handed
directly to the illiterate plaintiffs: in those circumstances the burden remained
on the defendants to bring home the content of the document to the plaintiffs.

Previous Dealings
Where there has been insufficient notice or no notice given in circumstances
where there has been a previous consistent course of dealing between the
parties on the same terms or by virtue of trade customs, exclusion and limiting
terms may be imported into a contract. In Hardwick Game Farm v Suffolk
Agricultural Poultry Producers Association(1969), more than 100 notices had
been given over a period of three years, which did not amount to a course of
dealing.

In British Crane Hire v. Ipswich Plant Hire(1974)QB 303.The parties were

companies engaged in hiring out earth-moving equipment and the
conditions ,employed by all firms in their line of business, was that the hirer
should indemnify the owner for all expenses in connection with use. The
plaintiffs supplied a crane to the defendants quickly without conditions of hire.
The crane later sank in marshy ground and the defendants resisted liability for

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expenses involved in recovering the crane. The court had to determine whether
terms and conditions in their line of business will be incorporated into the
contract and “held that the terms would be incorporated into the contract, not by
a course of dealing, but because there was a common understanding between the
parties, who were in the same line of business, that any contract would be on
these standard terms. The defendant were liable for the expense involved in
recovering the crane”.

The degree of dealing consistently to warrant incorporation of the term is a

matter of fact to be decided by the court. See Hollier v Rambler Motors(1972) 2AB
71.

Limitations on exemption clauses

1.Ambiguities and its construction
It is a well established rule of construction that any ambiguity contained in a
document is generally construed against the party who asserts the clause. It is
therefore the duty of the party who intends to avail himself of the exemption
clause to describe the limiting clause very clearly for in the event of doubt: it will
be resolved against him. In Rutter v Palmer ( 1922)ALL E.R Rep. at p. 370,
Scrutton L.J highlighted the general principles of construction of an exemption
clause. He stated:
“In construing an exemption clause certain rules may be applied: the first of which
is that the defendant ought not to be relieved from liability for the negligence of his
servants unless clear and unambiguous words to that effect are used.”

2.Exclusion of implied terms does not exclude express terms. Where the parties
excluded all implied terms, they cannot escape liability for breach of express
terms since the exclusion of things implied does not affect the express terms.

3.)Exclusion of warranties does not exclude conditions. It is a matter dictated by

common sense that the exclusion of lesser important terms of contract will not
extend to the important terms of contract .Therefore, if warranties are excluded,
there is no implication that conditions are also excluded.

Privity of contract
The doctrine of privity of contract connotes that a contract cannot confer any
rights on one who is not a party to the contract. Therefore, an exclusion clause
will not as a rule, protect someone who is not a party to the contract in which it
is contained. The doctrine has limited the extension of exemption clauses to third
parties. It does not matter that the clause purported to extend to them. For
instance, employees of a company are regarded in this context as third parties
and will not be availed the protection of the limitation or exclusion clause. In
Adler v Dickson(1955) 1QB 158,the plaintiff who was a passenger in a ship fell
from the gangway. He sued the captain of the ship. The latter sought protection
in a clause contained in the ticket for the voyage which provide thus: “…the
company will not be responsible for any injury whatsoever to the person of any
passenger arising or occasioned by the negligence of the company’s servants.” The

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court held that the protection could only be claimed by the company, the
defendant not being a party to the contract cannot claim the protection.

Also in Cosgrove v Horsfall(1945) 62 T.LR 140, the plaintiff an employee of the

London Passenger Transport Board, had a free pass for buses run by the board.
It was a term of the pass that neither the board nor their servants were to be
liable to the holder for injuries however caused. The plaintiff was injured as a
result of the negligence of the defendant, a bus driver and a servant of the board.
Having no remedy against the board, he sued the defendant personally. The
Court of Appeal held that the defendant was liable. He could not claim the benefit
of the exemption clause as he was not a party to the contract. See Scruttons v
Midlands Silicones Ltd(1962) AC 44. Contrast the case with Andrews v
Hopkinson(1957) 1QB 229

Fundamental terms/breach

In Photo Productions Ltd v Securior Transport Ltd (1980) A.C 827, Lord Diplock
defined a fundamental breach of contract as an event resulting from the failure
by one party to perform a primary obligation which has the effect of depriving
the other party of substantially the whole benefit which it was the intention of
the parties that he should obtain from the contract. Until the decision of the
House of Lords in the Suisse Atlantique case(1967) 1. A.C 361. It was generally
believed that a party guilty of a fundamental breach of contract could not avoid
liability by reliance on an exemption clause inserted into the contract for his
benefit. Lord Denning declared in Karsales(Harrow) Ltd v. Wallis(1956) 2ALL E,R
866 at p.868.:
“ It is now settled that exempting clauses, of this kind , no matter how widely they
are expressed, only avail the party when he is carrying out the contract in its
essential respects. He is not allowed to use them as a cover for misconduct or
indifference or enable him to turn a blind eye to his obligations. They do not avail
him when he is guilty of a breach which goes to the root of the contract….”
1.
The same ratio was adopted by the Privy Council in Adel Boshalli v Allied
Commercial Exporters Ltd,(1961) 1ALL E.R 866 at p.868.In a contract for the
supply of cloth between a supplier in London and a buyer in Lagos, the shipping
sample was found very much inferior in quality to the sample which formed the
basis of the agreement. The suppliers tried to rely on an exemption clause on the
following terms:
“For goods not of United Kingdom origin we cannot undertake any guarantees or
admit any claims beyond such as are admitted by and recovered by the
Manufacturers”

Reversing the decision of the Nigerian Federal Supreme Court, the Privy Council
held that the clause did not avail the respondents any protection. “An exemption
clause”, added the court, “can only avail a party if he is carrying out the contract
in its essential respects. A breach which goes to the root of the contract
disentitles a party from relying on an exemption clause.” See Shotayo and
Arunkegbe v Nigerian Technical Company(1970) 2 A.L.R .159. See also Pinnock
Brothers v. Lewis & Peat Ltd(1923) 1JB 690

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Lord Denning’s ratio in Karsales(Harrow) Ltd v. Wallis(1956) 2ALL E,R 866 at
p.868. prevail both in England and Nigeria and became known as the Rule of Law
Doctrine as it considered that a fundamental breach could not be excluded or
restricted in any circumstances as this would amount to giving with one hand
and taking with the other. However, in 1964, the Rule of Law doctrine was
rejected in UGS Finance v National Mortgage Bank of Greece(1964) 1 Lloyd’s Rep
446, in that case the court opined that the rule of law doctrine conflicted with the
freedom of contract and the intention of the parties. The theory of construction
of contract to consider the question of whether a clause could exclude liability
for a fundamental one was introduced for the first time.
The UGS case was unanimously approved by the House of Lords in Suisse
Atlantique Society d’ Armement Maritime S.A v N.V Rpttendamssche Kolen
Centrale(1967) 1 AC 361, where it was held that once the words of an exemption
clause are clear and wide enough, the doctrine of fundamental breach
Can not defeat its efficacy in protecting the party that invokes it.

Note that the view expressed by the House of Lords in Photo Production Ltd v
Securior Transports Ltd, supra was followed by the Supreme Court in Narumal &
Sons Ltd v Niger-Benue Transport Company Ltd(1989) 2NWLR (Pt. 106) 730 and
has since then become the law in Nigeria. The rule that a party cannot rely on
exemption clause in situation of fundamental breach is no longer law. Exemption
clauses are guided by the interpretation or construction of the contract. See
Narumal & Sons Ltd v Niger-Benue Transport Company Ltd(1989) 2NWLR (Pt.
106) 730

References/Compulsory reading
Geoffrey Uwadiegwu Achike on Contract( Justice Watch 2014)Pp181-204
Itse Sagay, Nigerian Law of Contract(2nd Edition Spectrum Books Limited)pp159-
202