Exemption Clauses

Question 1

Exemption Clauses - Topics

Answer 1

• Considerations
• Applicability Test
• Incorporation into the Contract
• Incorporation by Signature - Case Law
• Incorporation by Notice
• Fundamental Breach
• Statutory Limitations

Question 2

Exemption Clauses - Considerations

Answer 2

• Courts evaluate the exemption clauses carefully, balancing different factors
• Exemption clauses are problematic: a party agrees to do something, but at the same time excludes their liability for not doing part of all of it.
• Parties should be free to contract on the terms they agreed between them
• Exemption clauses reallocate risk between the parties

Question 3

Applicability Test

Answer 3

Test on the exemption clause applicability per McDermott & McDermott

1. Has the clause been incorporated into the contract?
2. Has it been worded so as to cover the breach that occurred (construction)?
3. Is it affected by any legislation? Is it between two commercial entities?

Question 4

Incorporation into the Contract - Types

Answer 4

• Incorporation by Signature
• Incorporation by Notice
• Incorporation through a Previous Course of Dealing

Question 5

Incorporation by Signature - Case Law

Answer 5

• General rule: A party to a contract cannot claim that a clause is not incorporated if the document containing it has been signed by them. Presumed to have read.
• L’Estrange v. Graucob [1934]: Bound if signed, even if not read, unless mislead.
• Curtis v. Chemical Cleaning [1951]: Exemption refused due to misrepresentation.
• Slattery v. CIÉ [1972]: General rules accepted in Ireland
• Londis v. Gorman’s Supermarket [2014]: Unequal bargaining power may influence.

Question 6

L’Estrange v. Graucob [1934]

Answer 6

• A café-owner signed a “Sales Agreement” without reading it. A clause excluded manufacturer’s liability if the machine was not fit for the purposes it had been sold.
• The court held that it was immaterial that the plaintiff has not read the agreement and does not know its contents, as long as he wasn’t mislead as to the contents of it.

Question 7

Curtis v. Chemical Cleaning [1951]

Answer 7

• The plaintiff had left her wedding dress to the defendant cleaners, and signed a document exempting the defendants from “any damage howsoever arising”.
• However, she was told a document excluded liability only for damage to beads and sequins, but it actually excluded liability for “any damage howsoever arising”.
• The court held that this misrepresentation, even if innocent, prevented the cleaner from relying on the exclusion clause.

Question 8

Londis v. Gorman’s Supermarket [2014]

Answer 8

• Held that the rigid general rule may need to be qualified, particularly in situations involving unequal bargaining power.
• A signature should not be binding by default and in all circumstances, especially to a significantly weaker party.

Question 9

Incorporation by Notice

Answer 9

A term must be adequately brought to the notice of the plaintiff

Olley v. Marlborough Court [1949]: Test for incorporation by notice

1. by a written document signed by the party to be bound;
2. by handing to him before or at the time of the contract a written notice
3. a prominent public notice, plain for the guest to see when he made the contract;
4. an express oral stipulation.

Question 10

Fundamental Breach

Answer 10

• A breach going to the root of the contract, depriving the whole benefit of the bargain.
• Karsales v. Wallis [1956]: Can’t exempt core parts of the contract.
• Photo Production [1980]: The fundamental breach rule abolished in England.
• Doctrine accepted in Ireland in Clayton Love but HC raised doubts in ESL Consulting v. Verizon, suggesting that Photo Production should be followed.

Question 11

Photo Production v. Securicor Transport [1980]

Answer 11

• Employee of a security company started a fire that led to destruction of the factory that the security company was hired to protect.
• The contract excluded liability for “any injurious act or default of any employee”. Exclusion covered any loss from fire.
• HoL held that the defendants could rely upon the clause. Parties bargaining on equal terms should be at liberty to apportion liability in the contract as they see fit.

Question 12

Statutory Limitations

Answer 12

• Sale of Goods and Supply of Services Act 1980 & Consumer Rights Act 2022
• Where the recipient of the service deals as a consumer, it must be shown
  (i) that the clause is fair and reasonable; and
  (ii) that the term has been brought to his attention.