Exemption Clauses - Exemption Clauses (Mugger Notes) 1....

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1. Introduction An Exemption Clause is the attempt of one party to insert terms Excluding or Limiting liabilities which would otherwise be his. An Exemption Clause purports to : (i) Define the promisor’s obligations . Thus one should read the contract as a whole and decide what it is that the promisor has agreed to do. (ii) Regarded as mere defences . Thus one should first construe the contract without regard to the exemption clauses in order to discover the promisor’s obligation and only then consider whether the clauses provide a defence to a breach of those obligations. A Limiting/Restriction Clause Contra Proferentum Rule : The construction least favourable to the person putting forward an instrument should be adopted against him. Ailsa Craig Shipping Co v Malvern Shipping Co [1981] 1 WLR 964 (House of Lords) ( Significance : Limiting Clauses are not to be construed as strictly and rigidly as Exclusion Clauses as it accords more with the true intention of the parties (Rule of Construction).) Facts : Appellants’ ship safeguarded by Respondents. Ship sunk to a total cost of £55,000. Respondents clause limited liability to £1,000. Held : Court held that the Limiting Clauses are not to be construed as strictly and rigidly as Exclusion Clauses as it accords more with the true intention of the parties (Rule of Construction). The potential loss which might have been caused in a breach was very high, compared to the charge for the respondents’ services, and the loss was likely to have been covered by insurance, hence the limiting clause was held to be effective. An exemption/limiting clause may be struck down by referring to the following questions : Is the clause incorporated into the contract? On construction, does it apply to the situation at hand? Is it nevertheless inoperative At Common Law? Under Statute Law with reference to the UCTA (Cap 396, 1994 Ed)? NB : In an exam hypothetical on exemption clauses, going through the above analytical framework practically guarantees a complete answer. 2. Is the Clause Incorporated into the Contract? A. By Signature In the absence of fraud or misrepresentation, a party who signs the document is bound by its terms regardless of degree of notice given and whether he has read the document. L’Estrange v Graucob Ltd [1934] 2 KB 394 (Phang 272) Facts : Plaintiff bought machine from Defendants and signed “sales agreement” which contained clauses in “legible, but regrettably small print” which she did not read . Held : Court held that she was bound by these terms. Scrutton LJ stated (at 403) that : “Where the contract is in an unsigned document (eg. railway ticket), the Defendant must prove the Plaintiff was aware, or ought to be aware of is terms”. When the document is signed and in the absence of fraud or misrepresentation, it is binding regardless
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Exemption Clauses - Exemption Clauses (Mugger Notes) 1....

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