Clear and unambiguous because exemption clauses are

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Clear and unambiguous Because exemption clauses are imposed rather than being freely agreed to (in most cases) the courts restrict them to their narrowest possible meaning before they apply them. If there is any room for doubt about the meaning and extent of a clause the party against whom it is being used gets the benefit of that doubt. If that happens, the courts may hold that the ambit and effect of the clause is too narrow to save the proferens from liability for the specific breach being complained of. For example in Alex Kay Pty Ltd v GMAC [1963] VR 458 the plaintiff company, which hired motor cars to the public, had an insurance policy which contained a clause exempting the insurers from any liability for loss or damage arising out of ‘any breach of contract, agreement or obligation’. One of the plaintiff’s vehicles was stolen by a hirer and Alex Kay
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© Stephen Graw 2012 26 claimed under the policy. The insurer refused to pay saying that, as the hirer had breached the hire contract by stealing the vehicle the exemption clause released it from liability. Alex Kay sued and won. The court found that the exemption clause was ambiguous in that it covered at least three possible forms of breach — breaches by the plaintiff of any contract it made with a hirer, breaches by a hirer or any breaches by anyone. Here the meaning which was least favourable to the proferens (the insurer) was the first — because it was the narrowest — and, applying it, the exemption clause did not cover the loss because Alex Kay had not breached the hire contract. Wide enough Exemption clauses must not only be clear and unambiguous, they must exclude the exact liability that the proferens seeks to escape. The governing principle is: look at the breach, look at the clause and ask if the clause is wide enough in its proper interpretation to cover the breach. If it is then, no matter what the breach is, the proferens will escape liability. If it is not wide enough, the proferens will be liable and will have to compensate the other party for the consequences of the breach. Ensuring that exemption clauses are drafted widely enough to cover all possible sources of liability is therefore very important. The Effect of the Competition and Consumer Act The Australian Consumer Law provides for a number of ‘consumer guarantees’ that are implied into all consumer contracts. These include guarantees that all goods and services supplied under a consumer contract will be of acceptable quality, will be fit for purpose, will correspond with the description (or sample) under which they were supplied, will be free from unnotified encumbrances and others. Under s 64 the supplier may not seek to exclude a consumer guarantee and any attempt to do so is void. Consequently, in consumer contracts including an exemption clause is largely pointless. They do however still have a role to play in non-consumer contracts.
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