Exemption clauses:

A term in a contract by which a party inserting the term seeks

to exclude/limit all/some of his liability in the event of a
breach of contract.

Incorporation
An exemption clause must be incorporated into the
contract as a term.
Where a party has not signed a document or contract
which contains an exemption clause, the exemption clause may
be incorporated by notice or by course of dealings. (Unsigned
document)

There are three ways in which an exemption clause may be

incorporated.
1. By notice:
- The burden is upon the party seeking to rely on the
exemption clause to establish that reasonable and
sufficient notice had been given:
- Must be given before or at the time the
contract is entered into.

Olley v Marlborough Court Ltd

Thornton v Shoe Lane Parking Co Ltd.
The plaintiffs paid for lodging at the defendants hotel.
In the hotel room, there was a notice stating that the
Held: Conditions on parking ticket could not be relied
hotel would not be liable for the theft or loss of any
on. The ticket was given after the payment was made
items in the room. The wifes fur coat was stolen from
and the machine ready to accept payment. Hence the
the room when they went out for a stroll. The
ticket came after the contract was formed.
defendant argued that the notice in the room had been
incorporated into the contract.

Held: The contract was entered into before the

plaintiffs entered the hotel room, and as a notice of the
exemption clause was only given after the contract
was entered into, it was not incorporated into the

- Notice in Documents
- The exclusion clause must be in a document
where contractual terms are expected
and not merely be found in a receipt.
Thornton v Shoe Lane Parking Co Ltd.

Held: Ticket held to be no more than a voucher or

receipt for the money that has been paid.
Chapelton v Barry Urban District Council

The hire of chairs for use on the beach was 2d for 3

hours and the public was required to obtain tickets for
their chairs from a nearby attendant. The plaintiff paid
for two chairs and took two tickets. On one side was
the statement that the defendant would not be liable
for any accident or damage arising from the hire of the
chairs. The plaintiff sat on the chair which gave way
and resulted in an injury.

Held: The exemption clause could not be relied upon

as it was found in a ticket which was merely a receipt

Grogan v Robin Meredith Plant Hire

Held: Standard conditions in time sheet were not

incorporated by signature of one party on this
document after the contract had commenced. IT is
merely an administrative and accounting document
and neither party to a contract or a reasonable man
would expect it to have any contractual terms or legal

- Sufficiently brought to the notice of the party.

i. An ordinary and reasonable person would
have realised that there was an exclusion
clause written.
ii. The party seeking to rely on it should have
taken reasonable steps to bring it to the
other partys attention.
iii. Whether all that is reasonably necessary to
give notice is a question of fact to which
the
court
must
look
at
all
the
circumstances and the situation of the
parties.
Parker v South Eastern Railway Co.

The plaintiff handed in a parcel worth more than 10 at

the cloakroom of the defendants railway station, paid
and received a ticket. At the back of the ticket was a
condition that the defendant would not be responsible
for any package exceeding the value of 10. The parcel
was then lost.

Held: It is not sufficient that the person in question

knows that there was writing on the ticket, but that he
must know or be given reasonable notice that the
ticket contains conditions.

iv. The other party cannot simply be

presumed to have had knowledge of
the exemption clause.
v. It is for the person relying on an exemption
clause to show that sufficient notice of the
clause had been given.

NOTE: Sufficient notice also depends on the type

and nature of the exclusion clause.
Interfoto Picture Library Ltd v Stiletto Visual
Programmes Ltd.

Held: The more onerous and unusual a clause, the

more it must be shown that it had been fairly and
reasonably brought to the other partys attention. The
greater the degree of notice required when the clause
is more onerous, unusual or unexpected is commonly
referred to as the RED HAND RULE

2. By course of dealing:
a. Where the other party is a regular customer
and there is a consistent course of dealing
between the parties.
J Spurling Ltd v Bradshaw

The defendant bought eight barrels of orange juice and

sent them to the plaintiff warehousemen for storage.
The plaintiff sent him a receipt called a landing
account which exempted the plaintiff from liability
from any loss or damage to the goods kept. The
plaintiff then sent an invoice stating that the goods are
kept at the warehouse at the owners risk. When the
defendant collected the goods, all eight barrels were
damaged.

Held: The plaintiff could rely on the exemption clause

having regard to the documents which had passed
between the parties. By the course of business and
conduct of the parties, such conditions were part of the
b. There must be sufficient communication
between the parties to constitute previous
course of dealings.

Hollier v Rambler Motors (AMC) Ltd.

In a period of five years, for three or four occasions,

the plaintiff had sent his car to the defendants for
repairs.
The defendants practice was to have a form signed
by the customer, which contained a clause stating
that they will not be responsible for any damage
caused by a fire to the plaintiffs car on the premises.
The car was then damaged by a fire on the premises
as a result of the defendants negligence.

Held: The clause could not be incorporated into the

oral contract made between the parties as three or
four transactions over five years were insufficient to
constitute a course of dealing.

c. There must be consistency in the dealings

between the parties.
Messrs Young & Co
Development Corp Ltd

Wee

Hood

Teck

A retainer had come into existence between the (R)

and (A) solicitors based partly upon the conduct of
the parties which showed a course of dealing which
give rise to legal obligations and establishing the
relationship of solicitor and client. The (A) had
written to the offering their services & had
prepared the (R)s articles of association. They had
also sent bills and receipts relating to other
transactions to (R) who made payment for them.
.
McCutcheon v David MacBrayne Ltd

There was a record of previous dealings between the

parties, but there was inconsistency in that the
appellants agent was sometimes asked to sign a risk
not containing the exemption clause relied on and
was sometimes not asked to sign it.

Held: The exemption clause could not be

incorporated into the contract
NOTE: Where a party has signed a document or contract
which contains an exemption clause, the issues of
incorporating an exemption clause by notice or by
previous course of dealing becomes irrelevant. (Signed
document)

3. By signature in a written document:

- A party is bound by the contract even though he
has not read the contract.
LEstrange v F Graucob Ltd

The plaintiff purchased a cigarette vending machine

from the defendant. The agreement contained a
clause excluding all implied warranties and
conditions. The plaintiff signed the agreement, but
did not read it and did not know of the exemption
clause. The machine broke down and the plaintiff
claimed against the defendant on the basis that it
was delivered unfit for the purpose for which it was
intended.
Held: The plaintiff was bound by her signature
despite the fact that the relevant clause was in small
print and despite the fact that she had not read it.
-The signature rule will not apply if there was fraud
or misrepresentation as to the effect of the
exemption clause.

Curtis v Chemical Cleaning & Dyeing Co Ltd.

The plaintiff sent her wedding dress, which had
beads and sequins, to the defendants laundry. The
shop assistant gave her a receipt and asked her to
sign it, stating that it was for the exclusion of the
defendants liability against certain risks, which in
this case was for the risk of damage to the beads
and sequins. In fact, the receipt excluded the
defendant from liability for all risks, and not just
limited to the beads and sequins. When the dress
was returned, there was a stain on it. The defendant
then relied on the exemption clause.
Held: The defendant could not rely on the exemption
clause
because
the
shop
assistant
had
misrepresented the exact scope of the clause.

Interpretation
After it has been determined that an exemption clause has
been properly incorporated into the contract, the clause must
be interpreted to determine if it covers the event which
has occurred.
There are four matters in relation to the interpretation of
exclusion clauses:
1. Contra proferentum rule
1) Applies if there is an ambiguity in the meaning and
scope of the words used. (E.g: the phrase
howsoever caused is too general)
a. When the clause is open to two constructions
b. When there is doubt as to the meaning and
scope of the clause
2) The court will interpret the ambiguous phrase strictly
against the party relying on the clause in favour of
the other party.

Malaysia National Insurance Sdn Bhd v Abdul

Aziz bin Mohamed Daud

The respondent drove his fathers car and was involved

in an accident. The insurance policy stated that the
appellant would not be liable while the car is being
driven by any person other than the authorised driver.
The respondent and his father were named as the
authorised drivers subject to the proviso that the
person driving was permitted in accordance with the
licensing or other laws and regulations to drive the
motor vehicle or had been so permitted, and was not
disqualified by order of a court of law or by 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 licence but had not been disqualified
by any court for holding or obtaining a driving licence.
The appellant denied liability and relied on the
exclusion clause.
Held: The respondent fell within the category of
persons who had been so permitted to drive the
motor vehicle, and was not disqualified by order of a
court of law or by reason of any enactment or
regulation in that behalf from driving the motor
vehicle.

2. Effect of negligence
- Where the party relying on the clause will not be liable
for whatever caused.
The party must then show that he had exercised
due diligence and care.
- The words used must be sufficiently clear to show the
intention to exclude negligence.

Chin
Hooi
Nan
v
Comprehensive
Restoration Service Sdn Bhd

Auto

The appellant left his car to be waxed and polished

by the respondents and was given a receipt to claim
for his car. At the back of the receipt, a clause
provided that the company will not be liable for any
loss or damage to the vehicle and that the vehicle is
left at the owners risk. The car was damaged while
being driven by an employee of the respondents.

Held: An exemption clause, however wide and

general, does not exonerate the respondents from
the burden of proving that the damage caused to the
car was not due to their negligence and misconduct.

3. Rule of law
Where there has been a fundamental breach, an
exemption clause however widely drafted, cannot be
relied upon.
a. A party should not be entitled to rely upon an
exemption clause if he has committed a breach
which goes to the root of the contract.
- Malayan Thread Co. v Oyama Shipping Line Ltd &
Anor
The plaintiff was the consignee of cotton sewing threads
which were shipped on board a ship belonging to the
first defendant. After the goods were unloaded at the
ships side, they were stolen by persons unknown. The
first defendant relied on Clauses 2 and 15 of the bill of
lading which provided:
a. Clause 2: the shipping company shall not be
responsible for any consequences arising or
resulting from loss by robberies, thefts,
pilferages, by land or water, whether by persons
in the employment or service of the company or
otherwise.
b. Clause 15: In any case, the companys liability
shall cease as soon as the goods leave the
ships deck.
Held: The clauses were wide and exonerated the first
defendant from liability.
Raja Azlan Shah J: The correct approach is to
consider whether on a proper construction of
the exemption clauses, the act which caused
the short delivery is covered by them. If so, then
to consider whether such act is a breach of a
fundamental term.

4. Rule of construction
- A fundamental breach of contract does not
automatically deprive the party in breach the benefit of
an exemption clause.
- It looked to whether the clause is wide enough in
construction to cover the events.

Photo Production Ltd v Securicor Transport Ltd

The defendants agreed to provide a visiting patrol

service to the respondents factory, charging 8.15s
a week. The contract contained an exemption clause
that under no circumstances shall the company be
responsible for any injurious act or default by any
employee of the company unless such an act or
default could have been foreseen and avoided by the
exercise of due diligence on the part of the company
as his employer. During a visit, an employee of the
defendants started a small fire that got out of control
and destroyed the entire factory with contents worth
615,000.

Held: The defendants had effectively modified their

obligation under the contract to the exercise of due
diligence in their capacity as employers, and there
was no evidence of any lack of due diligence on their
part to foresee or prevent the fire. The clause was
completely clear and adequate to cover the
appellants position.
HOL: There is no rule of law under the common law

2) Whether a breach is covered by the exemption

clause depends on:
a. Whether
the
exemption
clause
is
sufficiently clear and unambiguous to
receive effect in limiting the liability of the
party in breach
b. Whether a condition limiting liability is
effective or not is a question of
construction of that condition in the
context of the contract as a whole.