Law of Contract: Exemption Clauses at Common Law

Law of Contract: Exemption Clauses at Common Law

What are Exemption Clauses?

• A term of a contract intended to:

  • Limit the duties of one party.

  • Limit the remedies available to the other party in cases of breach of contract.

• Parties should be free to agree on:

  • Contractual obligations.

  • What happens if obligations are not met.

• Two types:

  • Exclusion clauses: exclude all liability.

  • Limitation clauses: confine recovery. Limitation clauses in contracts restrict the amount or type of compensation that one party can recover from the other in case of a breach. They do not exclude liability entirely but set a limit on it.

• Benefits:

  • Limit liability for certain risks.

  • Reduce insurance costs.

• Drawbacks:

  • Unequal bargaining power between parties. This refers to when one party in a contract has significantly more power or resources than the other, which can lead to unfair terms or conditions. The weaker party may have little choice but to accept the terms, even if they are disadvantageous.

  • Rarely brought to the attention of the contracting party (e.g., small print, notice on a wall).

• Initial consideration: Is there even a contract at all?

Incorporation: Awareness Before Entering the Contract

• A party wishing to impose an exemption clause must make the other party aware of the clause before they enter the contract.

• Olley v. Marlborough Court [1949] 1 All ER 127:

  • A hotel room contained a notice limiting the liability of the hotel.

  • The court held that the contract had been completed at the reception.

  • The notice was therefore ineffective to incorporate terms into the contract.

  • The hotel could not rely on the clause when a guest’s furs were stolen.

• Sproule v. Triumph Cycle Co [1927] NI 83

• Chapelton v. Barry [1940] UDC 1 KB 532

• Thornton v. Shoe Lane Parking Ltd [1971] 2 QB:

  • The plaintiff was a customer using a car park.

  • One entered the car park via an automatic gate, where a ticket was given out.

  • The ticket contained a notice that the contract was subject to terms displayed inside the car park.

  • The terms could not be seen until the customer had actually entered the car park.

  • Denning MR held that the contract was complete when the customer entered the car park.

  • Later notice of terms could not change the contract as it had then been formed. This means that once a contract is agreed upon (formed), any attempts to introduce new terms or conditions after that point are not valid because the agreement is already in place. All parties must be aware of, and agree to, the terms before the contract is finalized.

Contractual Documents

• James Elliott Construction Ltd v. Irish Asphalt Ltd [2014] IESC 74:

  • The defendant supplied building material to the plaintiff which ended up containing pyrite.

  • An exemption clause existed within the terms and conditions.

  • The argument was that it formed part of the contract because the plaintiff’s foreman signed delivery dockets which referred to the terms and conditions.

  • The Supreme Court held that these dockets were not contractual documents and in any event were provided after the contract was agreed.

  • To be considered contractual documents, some or all of the conditions themselves must be set out.

  • Reference to unspecified terms is not enough. In James Elliott Construction Ltd v. Irish Asphalt Ltd [2014] IESC 74, the Supreme Court held that delivery dockets signed by the plaintiff's foreman, which referred to terms and conditions containing an exemption clause, were not considered contractual documents. The court reasoned that the dockets were provided after the contract was agreed upon, and the dockets didn't set out any of the conditions themselves.

• Noreside Construction Ltd v. Irish Asphalt Ltd [2014] IESC 68

Sufficient Notice

• Key question: Did the person relying on the clause take reasonable efforts to bring the clause to the attention of the other party?

• The more onerous (troublesome) the term, the more efforts the party seeking to rely on it must make to bring it to the attention of the other side.

• Interfoto Picture Library v. Stilletto Visual Programmes [1988] 1 All ER 348

• Western Meats Ltd v. National Ice and Cold Storage [1982] ILRM 101:

  • A contract for the storage of goods was concluded on the basis of standard terms (set out in a receipt) excluding any liability on the part of the storage company for any loss caused by their negligence.

  • The storage company managed to mislabel goods belonging to the plaintiff, with the result that they either could not be found or suffered damage due to delay.

  • The storage company sought to rely on this exemption clause, but it was held by Barrington J. that it had not been sufficiently incorporated into the contract.

  • Reasoning: “A businessman, offering a specialist service, but accepting no responsibility for it, must bring home clearly to the party dealing with him that he accepts no such responsibility.” In Western Meats Ltd v. National Ice and Cold Storage, the court held that an exemption clause, which the storage company tried to use to avoid liability for negligence, had not been sufficiently incorporated into the contract. The reasoning was that a business offering a specialist service but accepting no responsibility for it must clearly communicate this lack of responsibility to the other party.

General Principles for Sufficient Notice

• Parker v. SE Railway (1877) 2 CPD 416:

  • If a party in fact knew of a term, then he is bound.

  • If no notice of a term was given, then the party is not bound.

  • If notice is given, but the party did not know it contained writing (as in the case of a ticket or receipt), then the party is not bound unless reasonable efforts were made to bring the clause to his attention.

  • If the party did know that a notice contained writing, and realized it contained terms, then he is bound even if he has not read them.

  • If the party did know that a notice contained writing, but did not realize it contained terms, he is not bound unless reasonable efforts were made to bring the terms to his attention.

• Ryan v. Great Southern and Western Railway Company (1898) 12 ILTR 108:

  • The plaintiff’s luggage was lost while travelling by train.

  • The back of the train ticket made reference to standard terms which could be examined elsewhere, which excluded liability in the particular case.

  • Held: the defendant was held not to have made reasonable efforts to bring this clause to the attention of the plaintiff.

• Early v. Great Southern Railway Company [1940] IR 414:

  • The plaintiff suffered injury in an accident on board the defendant’s train.

  • He had purchased his ticket in a ticket office where notices explained that tickets were issued subject to standard terms and conditions.

  • The face of the ticket bore the words “see back” while on the back was a reference to standard terms and conditions which could be found in the company’s timetables, books, etc.

  • No copy of these conditions was actually available for inspection in the office where the plaintiff bought his ticket, but the plaintiff had made no inquiries about these terms.

  • Held: the court held that the defendant had made reasonable efforts to bring the terms to the plaintiff’s knowledge, notwithstanding that they were not actually available for inspection at the office in question.

Online Contracts

• Ryanair Ltd v. Billigfluege.de GMBH [2010] IEHC 47:

  • Sufficient notice to put terms and conditions on a website in the form of a hyperlink which is clearly visible to website users and not concealed.

  • Click and wrap agreement.

    court held that ryanair made sufficient efforts to bring the exemption clauses to the attention of users, thus validating the enforceability of those terms under the contract.

• Specht v. Netscape 306 F.3d 17:

  • Software available on a website, terms were located below the download button.

  • Held that as the user would have to scroll down to the bottom of the page to access the terms, they would likely download the software before becoming aware of the terms.

  • Reasonable notice not provided.

Signed Documents

• A rule of law: signature of a document will result in a person being bound by all the terms of that document whether or not they are drawn to their attention.

• L’Estrange v. F. Gracob Ltd [1934] 2 KB 394:

  • Held that a plaintiff was bound by a clause excluding implied warranties of any sort, having signed the document containing such a clause, regardless of whether or not she had read the clause, and regardless of the fact that the limitation clause was buried in small print. The court decided that because the plaintiff signed the document, she was obligated to follow the clause that eliminated implied warranties. This holds true even if she didn't read the clause or if it was written in small print.

    To eliminate implied warranties means to remove the automatic guarantees that a product is of a certain quality and suitable for its intended use. By signing a contract that includes a clause eliminating implied warranties, the buyer agrees to waive these protections, even if they are

• O’Connor v. First National Building Society [1991] ILRM 208:

  • Exemption clause located in large letters at the place of signature held to be incorporated into the contract.

• Tilden Rent-a-Car v. Clendenning (1978) 83 DLR (3d) 400 (Canadian authority):

  • Held that signature of a standard form contract does not necessarily indicate a true intention to be bound by its terms.

    The case Tilden Rent-a-Car v. Clendenning suggests that simply signing a standard contract doesn't automatically mean the person genuinely agrees to all the terms, implying closer scrutiny may be needed to ensure true consent.

Course of Dealing

• A course of dealing will mean that a clause will more readily be incorporated even if, on the facts, a court might think that reasonable efforts were not made to bring it to the attention of the other side.

• Spurling v. Bradshaw [1956] 1 WLR 461:

  • A plaintiff was bound by an exclusion clause which he had not read where he had regularly stored his goods with the defendant on identical terms.

  • Although the notice might not have been sufficient as a once-off, taken over the course of their dealings it would suffice. In Spurling v. Bradshaw, the court found that because the plaintiff had repeatedly stored goods with the defendant under the same conditions, the exclusion clause applied, even if the plaintiff hadn't read it. The repeated interactions established familiarity with the terms, making them binding despite the lack of explicit acknowledgment or awareness of the exclusion clause in each individual transaction.

• Hollier v. Rambler Motors [1972] 2 QB 71:

  • The plaintiff was a consumer who had left his car with a garage for repair three or four times over a number of years.

  • Three dealings in five years not sufficient.

• Henry Kendall & Sons v. William Lilico & Sons Ltd [1969] 2 AC 31:

  • 2 or 3 dealings per month over three years is sufficient.

• Miley v. McKechnie (1949) 84 ILTR 89:

  • Regular and consistent course of dealing.

Contra Proferentem Rule

• If a clause is ambiguous and is capable of more than one meaning, it will be construed against the party seeking to rely on it.

• Reflects a judgment by the courts that a party who seeks to benefit from an exclusion clause should, at least, be required to draft it with some precision.

• Danske Bank v. McFadden [2010] IEHC 116 (per Clarke J):

  • Unable to reach a sure conclusion, limit the power of a dominant party.

  • Somewhat controversial.

  • Ambiguity can be used to limit the power of a dominant party

    In Danske Bank v. McFadden, Clarke J. noted that if the court is unable to reach a firm conclusion, it may step in to limit the power of a dominant party. This approach is somewhat controversial, suggesting that the extent to which courts should interfere in contractual relationships to balance power is debatable.

• George Mitchell (Chesterhall) Ltd v. Finney Lock Seeds [1983] QB 284 (per Lord Denning):

  • Protection from abuse of power BUT strained and unnatural constructions of clauses, rendering them ambiguous, is not appropriate.

  • Lord denning stated that interpretation of the ambiguos clause by the courts has to be reasonable based on the words used, courts cant force to find ambiguity when there isnt really any.

Pre-Contractual Liability

• Staunton v. Toyota (Ireland) Ltd [1996] I ILRM 171:

  • If a party wishes to exclude liability for pre-contractual behaviour, this must be set out in the contract expressly.

  In contract law, pre-contractual liability refers to responsibility for actions or statements made before the contract is finalized. The Staunton v. Toyota (Ireland) Ltd case emphasizes that if a party wants to avoid being held liable for any behavior or representations made before the contract was signed, this must be explicitly stated in the contract itself. Otherwise, they may still be held responsible for those pre-contractual actions.

Main Purpose Rule

• Sze Hai Tong Bank Ltd v. Rambler Cycle Co Ltd [1959] AC 576:

  • The main purpose of a contract cannot be defeated by a particular interpretation of a clause.

  • Here a clause provided that delivery of goods could only be received by authorised persons; this did not happen.

  • When the goods were damaged, the exemption clause could not be relied upon.

  • The clause cant make the main obligation meaningless

Fundamental Breach

• In this situation, an exemption clause seeks to provide that the party will not be liable for the most serious breaches of the contract.

• Clayton Love v. B & I Steampacket (1970) 100 ILTR 157:

  • The plaintiffs contracted with the defendants for the transport of quick frozen scampi under refrigeration.

  • It was a term of the contract that the goods would be loaded under refrigerated conditions, but this was not done, with the consequence that the goods were made valueless.

  • Two clauses in the contract had the effect of limiting the liability of the defendants, with the first providing that any claims must be made within three days of arrival, while the second entirely excluded any liability on the part of the defendants for damage to goods.

  • The plaintiffs challenged the operation of these clauses and were successful in the Supreme Court, which accepted (per O’Daly CJ) that:

  • “[A] party, who like the defendants, has been held to be in breach of a fundamental obligation cannot rely on a time bar in the contract to defeat a claim for damages. Equally with other exempting provisions such a time clause cannot be prayed in aid.” (at 170) The Clayton Love v. B & I Steampacket case established that a party in breach of a fundamental obligation of a contract cannot use time-limit clauses or other exemption clauses within the contract to avoid liability for damages caused by that breach. In simpler terms, if a company fundamentally fails to uphold their end of the agreement (like not refrigerating goods as promised), they cannot hide behind clauses meant to limit their responsibility, such as claiming the complaining party missed a deadline for reporting the issue. This ensures that fundamental contractual duties are taken seriously and cannot be bypassed through clever wording or minor technicalities.

• Photo Production Ltd v. Securicor Transport Ltd [1980] 2 WLR 283:

  • The modern English approach holds that there is no rule of law to the effect that exemption clauses can never extend to fundamental breaches of contract.

  • Instead, the issue will depend on the proper construction of each contract. The Photo Production Ltd v. Securicor Transport Ltd case states that exemption clauses can potentially apply even to fundamental breaches of contract, it depends on how the contract is written and interpreted in each specific situation.

• Western Meats Ltd v. National Ice and Cold Storage [1982] ILRM 101:

  • Obiter comments by Barrington J suggest that the English approach is preferred in commercial contexts.

The case doesn't explicitly state whether the plaintiff was aware that the ticket contained standard terms, just that the defendant had not made reasonable efforts to bring the clause to the plaintiff’s attention.

To eliminate implied warranties means to remove the automatic guarantees that a product is of a certain quality and suitable for its intended use. By signing a contract that includes a clause eliminating implied warranties, the buyer agrees to waive these protections, even if they are

In Spurling v. Bradshaw, the court found that because the plaintiff had repeatedly stored goods with the defendant under the same conditions, the exclusion clause applied, even if the plaintiff hadn't read it. The repeated interactions established familiarity with the terms, making them binding despite the lack of explicit acknowledgment or awareness of the exclusion clause in each individual transaction.