EXEMPTION CLAUSES

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Relevant chapters
Chapter 9 Exemption Clauses Chapter 10 Unfair Contract Terms Trakic A., et al., Law for Business, (Sweet & Maxwell Asia: Malaysia, 2014)

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Introduction
One may wonder and ask why the law would assist someone to avoid liability arising due to a breach of contract?

Freedom to contract
However, how freely do we really enter into our contracts, especially a so called standard from contracts?
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Exemption Clauses = Disclaimers

Whats this?

Think about practical Matters: - where is the sign? - enough reading time? - is it clear?
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Exemption Clauses?

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Exemption clauses

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Exemption clauses
Exemption
Clauses

Exclusion Clauses: Total Denial

Limitation Clauses: Partial Denial

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Exclusion Clauses - Examples

THE MANAGEMENT CANNOT ACCEPT ANY LIABILITY FOR LOSS OR DAMAGE CAUSED TO ANY VEHICLE OR ITS CONTENTS WHILST PARKED IN THIS CAR PARK. THE COMPANY WILL NOT BE LIABLE FOR ANY STAINS OR OTHER DAMAGE TO ANY CLOTHING WHATSOEVER. EQUIPMENT IS USED ENTIRELY AT CUSTOMERS OWN RISK. GOODS ARE SOLD AS SEEN: WE ACCEPT NO LIABILITY FOR FAULTS DISCOVERED AFTER PURCHASE.

MANAGEMENT RESERVES THE RIGHT TO SUSPEND SERVICES WITHOUT LIABILITY.

Trakic A., et al., Law for Business, (Sweet & Maxwell Asia: Malaysia, 2014) at pp 303304.
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Limitation Clauses - Examples

THE COMPANY WILL NOT BE RESPONSIBLE FOR ANY PACKAGE EXCEEDING THE VALUE OF $100. THE COMPANYS LIABILITY ARISING OUT OF OR RELATED TO THIS AGREEMENT WILL NOT EXCEED $50,000. LIABILITY ACCEPTED UP TO THE VALUE OF THE GOODS ONLY. NO LIABILITY IS ACCEPTED FOR CONSEQUENTIAL OR INDIRECT LOSSES.

COMPLAINTS CANNOT BE ACCEPTED UNLESS NOTIFIED IN WRITING WITHIN THREE DAYS OF DELIVERY.
Trakic A., et al., Law for Business, (Sweet & Maxwell Asia: Malaysia, 2014) at p 304.

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Exemption Clauses in Malaysia

The Contracts Act 1950 contains no provision dealing with exemption clauses. The Malaysian courts have followed English common law when considering this aspect of law.

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Exemption Clauses...
Three step approach (three hurdles):
Step 1 - Is it a term of the contract / has it been incorporated into the contract? Step 2 - Does it cover the breach complained of? Step 3 Is it unfair?

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Step 1 - Is the EC a term of the contract?

Incorporation of EC by Signature. Exceptions: 1. Fraud and Misrepresentation 2. Unfair Contract Terms 3. Non Est Factum

Incorporation of EC by Notice. Reasonableness & sufficiency of notice: 1. Nature of the document 2. Time of notice Incorporation by pervious course of dealings Hollier v Rambler Motors (AMC) Ltd. [1972] 2 QB 71
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Incorporation of EC by Signature
LEstrange v Graucob Ltd [1934] 2 KB 394, The plaintiff purchased a cigarette vending machine for use in her cafe. She signed a sales agreement which stated in small print 'Any express or implied, condition, statement of warranty, statutory or otherwise is expressly excluded'. The vending machine did not work and the plaintiff sought to reject it under the Sale of Goods Act for not being of merchantable quality (terms implied by statute). (Breach of an implied warranty that machine was fit for the purpose for which it was sold.) Held: In signing the sales agreement she was bound by all the terms contained in the agreement irrespective of whether she had read the it or not. Consequently her claim was unsuccessful.
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Exception 1: Fraud and Misrepresentation

If the signature has been induced by fraud (deliberate lie) then the innocent party will have right to repudiate the contract and/or to claim damages (i.e. exemption clause in such contract will not be enforceable). See s. 19 of the Contracts Act 1950. S Pearson & Son Ltd v Dublin Corp (1907) AC 351 - (Fraud) D furnished P drawings, plans & specifications relating to construction of sewer work. P contracted (signed) to undertake this work based on this information. Some of the information was false causing P to incur extra expense. P performed contract but sought damages. D claimed they were protected from liability due to clause in contract which stated that P must not rely on any representation made in the plans or elsewhere but must verify and determine the facts for themselves. HELD: A party may not avoid liability for his own fraudulent statements by inserting a clause in the contract that the other party shall not rely on them. Plaintiff succeeded in his claim.
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Cont
Where there has been misrepresentation as to the extent of the exemption clause or to its existence, by the party that inserted it into the contract, that party will not be permitted to rely on the exemption clause.

Curtis v Chemical Cleaning & Dyeing Co (1951) 1 KB 805 - (Misrepresentation) P brought to the Ds shop a white satin wedding dress trimmed with beads & sequins for cleaning. P was handed a receipt which she was asked to sign. P asked why? Reason given was that the shop would not accept liability for certain specified risks including the risk of damage by or to beads & sequins. The receipt actually contained a much broader exemption excluding liability for any damage howsoever arising, or delay. Dress returned with a stain. P sued for damages. D relied on EC to exclude liability. HELD: As a result of the misrepresentation as to the scope of the EC contained in the receipt, it never became part of the contract.

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Exception 2: Unfair Contract Terms

Exemption clause which is declared by the court as unfair contract term will not be incorporated into a contract by way of signature. In fact, the whole contract could be declared void as per Part IIIA of the Consumer Protection (Amendment) Act 2010. The Malaysia law prior to the Amendment Act 2010: English doctrine of unequal bargaining power or unconscionable contract Saad Bin Marwi v Chan Hwan Hua & Anor [2001] 3 CLJ 98 American International Assurance Co. Ltd. v Koh Yen Bee (f) [2002] 4 MLJ 301 The Malaysian law after the Amendment Act 2010: Part IIIA Unfair Contract Terms

Other Common law jurisdictions: UK (Unfair Contract Terms Act 1977, Australia (Competition and Consumer Act 2010) and (Securities and Investments Commissions Act 2001), Hong Kong (Control of Exemption Clauses Ordinance (Cap 71), Singapore (Unfair Contracts Terms Act 1977) (Chapter 396), Brunei (Emergency (Unfair Contract Terms) Ordinance 1994) etc.
See Chapter 10, Trakic A., et al., Law for Business, (Sweet & Maxwell Asia: Malaysia, 2014) at pp 329-347.
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Exception 3: Non est factum the act of signing is not my deed

Where an individual operating under some type of incapacity such as illiteracy or blindness, through no fault of his own, signs a document that is radically different from what he thought he was signing, may be able to assert non est factum (this is not my deed). Requirements for a plea of non est factum are that: 1. The individual signing was under some permanent or temporary disability; 2. He took all reasonable precautions to ensure that he was signing what he thought he was signing; and 3. There was a radical difference between what he signed and what he thought he was signing. Effect: original transaction void. Awang v Haji Omar (1949) MLJ Supp 28 P sued D for damages for breach of contract. It appeared that the 1st dft, who did not know English was induced by the 2nd dft, his brother to sign the document containing the contract on the understanding that it was a matter of witnessing his brothers signature. HELD: the defence of non est factum was open to the 1st dft and he could not be held liable on the contract.
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Incorporation of EC by Notice
Exemption clauses may be contained in a document such as a docket or a receipt in which one would not expect to find terms of a contract. If the document is not signed but merely delivered to him in the form of tickets or notices, then the court requires that, for these terms to be binding, it must be adequately brought to his notice. In other words, to be a term of the contract, the existence of the EC must have been brought to the knowledge or notice of the party against whom it is to be used. Without knowledge or notice of the existence and contents of the clause, there can be no consensus to create a contract. Without notice, the EC is ineffective!!

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Notice must be Reasonable & Sufficient

An EC that is contained in a written document or notice may be incorporated as a term of the contract if reasonable or sufficient notice is given to the person against whom it is invoked. Think about this: EC that are contained in unsigned documents or notices such as tickets, holiday brochures, notices posted in hotel rooms, etc. The burden is on the party seeking to rely on the exemption clause to establish that reasonable notice had been given. What in fact is reasonable notice will depend on the following factors.
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1. Nature of document
The document containing the EC must be one which a reasonable person would expect to find contractual terms. Would a reasonable person expect to find contract terms in, for example, a mere docket or receipt? Jenifer Mcalpin Lynn & Ors v AK Ludin bin PG Salimin & Anor (504) MD 3 P & husband were passengers in a water taxi owned by 2nd dft. Water taxi collided with a boat. Driver of water taxi and Ps husband died. On the back of the receipt for the fare was written all passengers are at their own risks. One of the issues was whether the exclusion clause on the back of the receipt exonerated the second defendant from liability. HELD: To rely on the EC, the 2nd dft had to show that he had given reasonable notice of the EC to the passengers. The passenger would not consider a receipt to be a contractual document and would not expect it to contain contract terms. Therefore, the EC was ineffective and did not protect the 2nd dft.
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Cont
Degree of notice: At the time of the contract, reasonable steps should have been taken to bring the EC to the other partys notice.

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The Ticket Cases

Please Consider Parker v South-Eastern Railway Co (1877) 2 CPD 416
See back Conditions on reverse of ticket. Mellish LJ observed: 1. if the person receiving the ticket did not see or know that there was any writing on the ticket, he is not bound by the conditions; 2. that if he knew there was writing and knew or believed that the writing contained conditions then he is bound by the conditions ; 3. that if he knew there was writing on the ticket but did not know or believe that the writing contained conditions, nevertheless he would be bound if the delivering of the ticket to him in such a manner that he could see there was writing upon it

Sugar v London, Midland and Scottish Railway Co. [1941] 1 All ER 172,
Anything that covers the notice, such as a date stamp, or any matter that hides the notice or obscures it, will prevent reasonable notice occurring.

Is this effective notice????

Thompson v LM & S Railway Co. [1930] 1 KB 41,

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Signs: Enter at own risk..

Please consider

Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163

Car park. P got ticket from machine, drove in, parked car. Small print on ticket ticket is issued subject to conditions displayed on premises. Conditions were displayed on pillar opposite machine but hard to see. Conditions excluded liability for injury. P injured. Held: D liable for negligence. Clause did not exempt them and it is not a part of contract because the D had not done what was reasonably necessary to bring clause to Ps notice.

In this instance virtually impossible to read conditions before acceptance

A term of the contract?

When was the offer and BTW 1042 Sem. 1 2014 acceptance?
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2. Time of notice
An EC will only be incorporated into a contract if notice of the EC was given before or at the time of contracting. Olley v Marlborough Court Ltd (1949) 1 KB 532 P & husband were guests in Ds hotel. Upon arrival, they concluded a contract for a one week stay. They paid for a week in advance & went to their room. In their room, was a notice that stated the proprietors will not hold themselves responsible for articles lost or stolen unless handed to the manageress for safe custody Various valuables were stolen from the Ps room. HELD: A notice such as that found in the Ps room which could not have been seen until after the contract had been concluded could not form part of the agreement. Thus the EC was ineffective.

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Incorporation by Previous Course of Dealings

See Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71
P sent his car to Ds garage for repairs On 3 or 4 occasions during the past 5 years, D carried out repairs on Ps car and on at least 2 of those occasions the P had signed the Ds standard form that stated that the D was not responsible for damage caused by fire to customers cars on the premises. However, on the instant occasion, P had not signed Ds standard form merely an oral agreement As result of Ds negligence, there was a fire causing substantial damage to Ps car D sought to avoid liability claiming that although the P had not signed the Ds standard form, it was incorporated by a course of dealing between the parties. HELD: The 3 or 4 transactions that occurred over the past 5 years were not sufficient to establish a course of dealing such that provisions of the Ds standard form could be implied into the oral contract between the parties.
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Step 2 - Does the clause cover the damage?

Natural and Ordinary Meaning Strict Interpretation i.e. Contra proferentum rule Fundamental Breach Four corners Rule

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Natural and Ordinary Meaning

the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract,
Darlington Futures v Delco Australia Pty Ltd (1986) 161 CLR 500, at p. 510. Malaysian National Insurance Sdn bhd v Abdul Aziz bin Mohamed Daud [1979] 2 MLJ 29, FC.
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Cont
Malaysian Airlines Bhd v Malini Nathan [1986] 1 MLJ 330 The respondents were booked and had confirmed tickets to fly on the appellants airline on a scheduled date. As the flight was fully booked, the appellant was unable to accommodate the respondents on the said flight. The respondents sued the appellant for damages and the appellant relied on condition 9 of the conditions of contract printed on the airline ticket. The said condition provided as follows: Carrier undertakes to use its best efforts to carry the passenger and baggage with reasonable dispatch. Times shown in timetables or elsewhere are not guaranteed and form no part of this contractSchedules are subject to change without notice The former Supreme Court held that the appellant was entitled to rely on the said connection and was thus not in breach of contract for failing to fly the respondents from London to Kuala Lumpur on the appellants airline.

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Cont

Malaysian National Insurance Sdn bhd v Abdul Aziz bin Mohamed Daud [1979] 2 MLJ 29, FC. In this case, the defendant was driving his fathers car when it was involved in an accident. The policy of insurance covering the car stated that the company shall not be liable whilst any person other than an authorized driver was driving the motorcar. The defendant and his father were named as authorized drivers subject to the following proviso: Provided that the person driving is permitted in accordance with the licensing or other laws and regulations to drive the motor vehicle or has been so permitted, and is not disqualified by order of a court of law or by any reason of any enactment or regulation in that behalf from driving the motor vehicle. At the time of the accident the respondent had an expired driving license but no court had disqualified him form holding or obtaining a driving license. The question arose whether the insurance policy was in force on the date of the accident? The appellants denied responsibility and relied on the exemption clause. The respondent argued that the second limb of the proviso covered him. Harun J held: The second limb precisely envisaged the respondents situation where there was a technical lapse to renew his driving license. Thus, the respondent was insured under the policy. Decision was upheld by the Federal Court. BTW 1042 Sem. 1 2014 29

Strict Interpretation (Contra proferentum) rule

This rule means that the court will construe forcibly the words of a written document against the party putting forward the document. The courts only apply this rule in case of ambiguity. If there is any doubt or ambiguity in the meaning and scope of the exclusion clause used, the court will construe the ambiguous phrase against the party relying on the exclusion clause in favour of the other party.
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Doctrine of Fundamental Breach

Fundamental breach = is a breach of a central crucial obligation, which is the basis / foundation of the contract. . From the late 1940s, many cases decided cases developed an authority that where there had been a breach of fundamental term, the party in breach could not avoid liability by relying upon an exemption clause. However, in Suisse Atlantique Societe dArmement Maritime SA v NV Rotterdamsche Kolen Centrale [1971] 1 AC 361, the doctrine of fundamental breach was rejected as inconsistent with the freedom of contract . Covered by exemption clause? Yes if properly worded. Photo Production Ltd v Securicor Transport Ltd [1980] 2 WLR 283
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Cont
Photo Production Ltd v Securicor Transport Ltd [1980] 2 WLR 283 In this case a Securicor Transport security guard was put in charge of guarding Photo Production's building. The agreement between Securicor and Photo Productions contained an exclusion clause that absolved Securicor from any liability for "injurious act or default by any employee of the company." While the security guard was on patrol of the Photo Productions building he intentionally started a fire that destroyed the whole building. Could Securicor rely on the exclusion clause to escape liability for their employee's conduct? Photo Productions argued that the clause could not apply under the doctrine of fundamental breach. That is, the breach of the contract was so huge that it invalidated the whole agreement. At the Court of Appeal, Lord Denning found that the doctrine of fundamental breach did apply. However at the House of Lords, Lord Wilberforce, overturned Denning and found that the exclusion clause could indeed be relied upon.
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The Four Corners Rule

The four corner rule is that an exemption clause is effective only in relation to damage that occurs within the four corners of the contract. The idea is that a party should not be able to rely on an exemption clause to escape liability if it acts outside the terms of the contract. For example: where a carrier without justification deviates from an agreed route; bailor stores goods in place other than that agreed, they cannot invoke exemption clause to limit the liability. Something outside the four corners of the contract will not be covered. Sydney Corporation v West (1965) 114 CLR 481, Each exemption clause must be construed/interpreted in the light of the contract as a whole. Four Corners = the boundary or limits of what was agreed to at the time of formation, or what the Court believes would have been agreed to.

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Step 3 Is the exemption clause unfair?

See Unfair Contract Terms slide See English doctrine of unequal bargaining power or unconscionable contract See Part IIIA of the Consumer Protection (Amendment) Act 2010

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