Exemption clauses in contract law

  

Date Posted: 2/26/2012 3:00:11 AM

Posted By: ngombemgonjwa  Membership Level: Bronze  Total Points: 45

---

Construction of the Exemption Clause

The court can nullify the effect of the exemption clause when it comes to interpreting them
• contra-preferentum rule
• fundamental breach/obligation theory


NB: the English position is quite different, since they have different laws regulating such, namely Unfair Contracts act 1977

Contra- preferentum rule
Courts interpret clauses restrictively and narrowly against the person relying on them, i.e. it will interpret the exemption clause in a manner which does not favour the party who/which has incorporated them into the contract (the one with the superior bargaining power).

Omar Saleh v Besse & Co. [1960] EA 907
Sir Kenneth O’Connor said, ‘I am not prepared to hold that a clause which excludes liability for warranties necessarily excludes liability for implied conditions.’

Houghton v Trafalgar Insurance [1954] 1 QB 247
A five-seater motor vehicle was involved in an accident while carrying six people. The driver’s insurance policy exempted the insurers from liability for damage caused while the car is carrying any load in excess of that for which it was meant. The insurers refused to pay, relying on this clause, but were held liable because passengers are not a load and therefore the exemption clause was construed contra-preferentum.

Courts also do not accept exclusion clauses of liability for negligent acts; unless the wording clearly shows so (it cannot be ambiguous).

Chatricha v Pumchand & Sons [1959] EA 746
Plaintiff stored metal sheets from the defendant’s godown. The contract excluded the defendant from liability should any of the sheets be lost. Some of the sheets were in fact, lost and the plaintiff sued. The Court of Appeal rejected the protection offered by the exclusion clause on grounds that the company had nothing to show that the loss had occurred in such a way that the clause would cover it.

Under this rule, if there are any phrases in the contract that

appear ambiguous, then the court will interpret them against the party which/who inserted them.

Kenya Trading Corporation v Algemene Bank [1971]
The court allowed the application of the exclusion clause.

Fundamental breach/ Obligation theory

The courts question whether there has been a fundamental breach or not. If a party tries to exclude himself/herself/itself from performing what amounts to the core of the contract, then he is attempting to avoid his fundamental duty and the courts will not allow him to do so. With this doctrine, even when adequate notice of terms and conditions in a document have been given, the party inserting the exclusion clause may not be able to rely on them if he has committed a fundamental breach of contract.

The question that arises is what constitutes a fundamental breach. See Swiss Atlantic [1966] QB 361 case.

Before 1966, courts held that a breach of a fundamental term of a contract will render the exclusion clause invalid. Since a breach of a fundamental term of a contract undermines the main purpose of the contract, then the exclusion clause which seeks to absolve liability shall also be unenforceable by courts.

---

Next: Disadvantages of university double intake in Kenya
Previous: Recipe for Githeri garnished with Spaghetti