Exclusion clause
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contract that seeks to restrict the rights of the parties to the contract. Exclusion clauses generally fall into one of these categories:
- True exclusion clause: The clause recognises a potential breach of the contract, and then excuses liability for the breach. Alternatively, the clause is constructed in such a way it only includes reasonable care to perform duties on one of the parties.
- Limitation clause: The clause places a limit on the amount that can be claimed for a breach of contract, regardless of the actual loss.
- Time limitation: The clause states that an action for a claim must be commenced within a certain period of time or the cause of action becomes extinguished.
The courts have traditionally held that exclusion clauses only operate if they are actually part of the contract. There seem to be three methods of incorporation:
- Incorporation by signature: according to L'Estrange v Graucob [1934] 2 KB 394, if the clause is written on a document which has been signed by all parties, then it is part of the contract.
- Incorporation by notice: the general rule is that an exclusion clause will have been incorporated into the contract if the person relying on it took reasonable steps to draw it to the other parties' attention. Thornton v Shoe Lane Parking [1971] 2 WLR 585, seems to indicate that the wider the clause, the more the party relying on it will have had to have done to bring it to the other parties' attention.
- Incorporation by previous course of dealings: according to McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125, terms (including exclusion clauses) may be incorporated into a contract if course of dealings between the parties were "regular and consistent". What this means usually depends on the facts, however, the courts have indicated that equality of bargaining power between the parties may be taken into account.
The courts have a tendency of requiring the party relying on the clause to have drafted it properly so that it exempts them from the liability arising, and if any ambiguity is present, the courts usually interpret it strictly against the party relying on the clause.
As espoused in Darlington Future Ltd v. Delcon Australia Pty Ltd (1986) 161 CLR 500, the meaning of an exclusion clause is construed in its ordinary and natural meaning in the context. Although we construe the meaning much like any other ordinary clause in the contract, we need to examine the clause in light of the contract as a whole.
However, if after construing the contract in its ordinary and natural meaning, there is still ambiguity in the exclusion clause, the contra proferentem rule shall apply; that is to say, the clause is construed against the person trying to take advantage of the rule.
In terms of negligence, the courts have taken the approach that it is unlikely that someone would enter into a contract that allows the other party to evade fault based liability. As a result, if a party wishes exempt his liability for negligence, he must make sure that the other parties understand that. The decision in Canada SS Lines Ltd v. The King [1952] AC 192 held that:
- If the exclusion clauses mention "negligence" explicitly, then liability for negligence is excluded.
- If "negligence" is not mentioned, then liability for negligence is excluded only if the words used in the exclusion clause are wide enough to exclude liability for negligence. If there is any ambiguity, then the contra proferentem rule applies.
- If a claim on another basis can be made, then liability for negligence is not covered by the exclusion clause.
If the contract is for the carriage of goods, if the path is deviated from what was agreed, any exclusion clauses no longer apply.
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