Construction Of Exemption Clauses Flashcards
When you are considering whether a party can rely on an exemption clause, you need to consider the three points set out below:
- Incorporation
- Construction
- Statutory Controls
Exemption clauses can be drafted in a variety of ways. They will generally have two or more of the following elements:
a) A statement of whether liability is entirely excluded or only limited to a stated amount.
b) A statement of which types of claim / duties the exemption relates to.
c) A statement of which types of loss the exemption relates to.
LLD
The following examples indicate the elements listed above (not all of which are present in all the examples).
You might disagree with the way we categorised the elements – there are other ways it could be done.
The important thing is to consider all three aspects when looking at the overall effect of a clause.
a) Any express or implied condition, statement, or warranty, statutory or otherwise not stated herein is hereby excluded [most of this relates to the types of claim / duties the exemption relates to]
b) We will not be liable for any personal injuries to the riders of the machines hired [most of this relates to the type of loss the exemption relates to ie personal injury]
c) The relevant clauses stated that the defendant’s liability for pollution and contamination would be limited to £5 million in the aggregate. [this relates to a type of loss (pollution and contamination) and imposes a limit rather than exclusion (£5 million). The exclusion stated that:
d) Liability for any claim in relation to asbestos is excluded [a type of loss – asbestos].
e) All liability for loss or damage arising to property or goods directly or indirectly resulting from negligence or malfunction of the systems or components is excluded [A type of claim – negligence]
The general rule is that exemption clauses will be construed contra proferentem.
What is meant by Contra proferentem?
This means that if there is any doubt as to the meaning and scope of the exemption clause, the ambiguity will be resolved against the party (known as the ‘proferens’) seeking to rely upon it.
The courts have held that clear words must be used if they are to excuse one party from its liability.
It should be noted that the courts apply the contra proferentem rule with less rigour where the clause in question merely limits (rather than excludes) liability: Ailsa Craig Fishing Co Ltd v Malvern Fishing Co [1983] 1 WLR 964.
What happened in Houghton v Trafalgar Insurance [1954] 1 QB 247 regarding contra proferentum?
In Houghton v Trafalgar Insurance [1954] 1 QB 247 a car carrying six passengers was involved in an accident.
The car was designed to hold a maximum of five passengers. The defendant insurance company sought to rely on the clause within the insurance contract which excluded liability, ‘for damage caused or arising whilst the car is conveying any load in excess of that for which it was constructed’.
The question for the court was whether ‘load’ could refer to passengers. Lord Somervell concluded that it did not:
I think that it would need the plainest possible words if it were desired to exclude the insurance cover by reason of the fact that there was at the back one passenger more than the seating accommodation
The ambiguous clause was construed against the proferens.The claimant in this case was a consumer. The court is less likely to read a clause contra-proferentum in a contract between commercial parties of equal bargaining power. In Victoria Street v House of Fraser [2011] EWCA Civ 904 the court stated:
“The words used, commercial sense, and the documentary and factual context are, and should be, normally enough to determine the meaning of a contractual provision”
The contra-proferentum rule should therefore be applied with sensitivity to the particular circumstances of the case.
Who is the ‘proferens’?
the party which proposes or adduces a contract or a condition in a contract.
Here it is the party seeking to rely upon the exclusion clause
Define Negligence.
Breach of a duty of care which results in damage.
Clear words must be used if a party is seeking…
…to exclude liability resulting from its own negligence.
The requirement is most obviously met where…
…the word ‘negligence’ itself is used and, in practice, most drafters will avoid ambiguity by using the word negligence.
The requirement may be satisfied if the words do not expressly refer to negligence but…
…are nevertheless wide enough to extend to negligence (eg ‘all liability howsoever caused’)
What requirements are called the ‘Canada Steamship rules’ after the case Canada Steamship Lines v R [1952] AC 192?
If general words are used their effectiveness may depend on the following distinction:
- Cases where the only basis for liability is negligence
- Cases where the party will be liable irrespective of negligence
Traditionally, a clause falling in the first category would be effective to cover negligence and the second would not.
The decision in what case has altered how Canada Steamship rules should be applied?
The decision in Persimmon Homes Ltd v Ove Arup & Partners Ltd [2017] EWCA Civ 373 has cast doubt on the extent to which the Canada Steamship rules apply to commercial contracts.
In recent years, the courts have favoured a more commercial, and less mechanistic, approach to interpreting exemption clauses and to the application of the Canada Steamship rules.
Lord Justice Jackson commented in Persimmon Homes that the contra proferentum rule now has a very limited role in relation to commercial contracts negotiated between parties of equal bargaining power.
What is the doctrine of privity?
The doctrine of privity establishes that, at common law, a party outside the contract cannot benefit from its terms.
Nor can that party have an obligation imposed upon it by the contract. The doctrine applies to an exemption clause in just the same way it would to any other kind of clause.
The effect of this common law rule has been reduced, in certain circumstances, by the Contracts (Rights of Third Parties) Act 1999 (the ‘Act’).
The court is less likely to read a clause contra-proferentum in a contract…
…between commercial parties of equal bargaining power.
The Canada Steamship test helps to determine whether…
…an exemption clause should be interpreted as excluding liability for negligence, particularly when the clause is more ambiguous.
