•An exemption clause is defined as: ‘a clause in a contract or a term in a notice which appears to exclude or restrict a liability or a legal duty which would otherwise arise’ (per Yates in 1982). Thus, an exemption clause in a contract is one that attempts to exclude or limit one party’s liability towards the other.
•‘Exemption clauses are an important feature of modern contracts…’ (per Downes)
•An exemption clause can be of two kinds:
A limitation clause: where a party tries to restrict liability. An exclusion clause: where a party tries to exclude liability. •The general rule is that the parties are free to determine the terms of their own contract. A justified use of an exemption clause may arise in business, such as where a buyer of a product agrees to late delivery in exchange for a lower price, and the courts will not interfere with this. They will, however, be much less willing to enforce an exemption clause that has been imposed on a consumer without free negotiations. The courts and Parliament do not look favourably on exclusion clauses and have found various ways of limiting their effect. •Just read: The law on this topic is found in the common law as modified by the Unfair Contracts Terms Act 1977 (UCTA). This statute made certain clauses completely ineffective, while others are allowed only if they are ‘reasonable’. The Unfair Terms in Consumer Contracts Regulations 1994 and 1999 also affect the validity of certain terms that are ‘unfair’ within the meaning of the Regulations. However, the cases before 1977 are still valid as they illustrate important principles of law. Moreover, not all exclusion clauses have been affected by the Act or regulations. Therefore, it is necessary to consider both common law and statutory laws on this topic. •The courts use a three-stage process to decide if an exemption clause is valid. (A) Incorporation, (B) Construction, (C) Legislation. The first two are based on common law rules.
COMMON LAW RULES ON EXCLUSION CLAUSES
Clearly no exclusion clause is valid if it is not a part of the contract, and it is not part of the contract unless both parties agreed to it at the time. thus, firstly, one should determine/ask: Is the clause part of the contract? There are three basic ways in which an exemption clause maybe incorporated (included) into a contract:
•As a general rule, an exemption clause will be incorporated into a contract if it is contained in a contractual document, which has been signed by the party against whom it is to take the effect. Thus if a contract has been signed, it will be binding on the person signing it. L’Estrange v Graucob (CA): P ordered a slot machine from D, and signed a standard printed order form including (in very small print) a clause excluding any kind of warranty. The machine did not work, and P claimed not be bound by the exclusion clause which she had not read. The court found against her: in the absence of misrepresentation, a party who signs a document is normally bound by its contents whether or not he has read them. •Exceptions:
-Where there has been a fraud, or
-Where there has been a misrepresentation, or
-Where the defence of ‘non est factum’ can be raised.
Curtis v Chemical Cleaning & Dyeing (CA): P took a satin wedding dress to D to be cleaned. She was asked to sign a document containing a clause excluding D’s liability for damage of any kind: before signing, she asked what the document was and was told that it excluded liability for damage to beads or sequins. P signed without reading the document: the dress was stained during cleaning, and P sued. The COA found in her favour: the assistant’s innocent misrepresentation of the effects of the document had the effect of excluding the clause from the contract.
If the signature has been obtained by fraud or misrepresentation, the contract will be voidable and the signer may...