Law of Contract Notes - Exemption Clause

Law of Contract Notes - Exemption Clause

• 1.
  Contract Notes -Exemption Clause Exemption clauses are clauses inserted in contract to exempt the party from certain liabilities at common law. They may appear in printed tickets, notices or receipts. Example of exemption clause can be found in Malaysian Airlines Bhd v. Malini Nathan,where it was held that the appellant was entitled to rely on the exemption clause and thus was not in breach of contract for failing to fly the respondents from London to Kuala Lumpur on the appellant’s airline. However,when dealing with exemption clauses, the Malaysian courts follow the English common law since the Contracts Act 1950 contains no provision of it. As the recipient of the document that contains exemption clauses, the party is under the protection where the courts require the exemptions clauses to abide by the certain standards of notice in respect of the terms and construing the document whenever possible, in favor of the party receiving it. Among the standards which the notice must abide by is, it must be contemporaneous with the contract. In simple terms, it must be brought to the notice of the contracting parties before or at the time the contract is made. If it is made after,then it is not effective, as in the case of Olley v. Marlborough Court Ltd. In this case,the notice was made in the paid hotel room which the plaintiff would have only seen it after the contract was made. Therefore,the defendant cannot rely on the exemption clause. Another example can be found in Goh Gok Hoon v. EusuffBros Sdn Bhd,where it was held that the restriction of subletting was conveyed only after the tenancy agreement was concluded, which means the first respondent had no notice of it at the time when he wrote the letter of acceptance. Therefore,the plaintif cannot rely on the exemption clause as well. In conclusion, the notice must be contemporaneous with the contract or it will not be effective. The second standard is, the notice must be reasonable sufficient to bring it to the notice of the recipient. In the case of Parker v. South-Eastern Rly Co,it was held that the notice of condition was reasonably sufficient, as it has ‘See Back’ written at the ticket. Therefore, the defendant can rely on the exemption clause. It is immaterial if the plaintiff knew what was writing on the ticket, but did not know or believe that the writing contained conditions because he will be bound to it. A similar example can be found in Thompson v. London, Midland & Scottish Rly Co. The ticket contains ‘For conditions see back’. The court held that it was reasonably sufficient since the ticket plainly on its face referred to the conditions under which it was issued. Similarly, the exemption clause can be relied on. In contrast, the court held that the notice was not reasonably sufficient in the case of Richardson, Spence & Co v Rowntree,because the ticket was handed to her folded up and the condition were obliterated in part by a stamp in red ink. Whether all that is reasonably necessary to give notice has been done is a question of fact. The tribunal must look at all the circumstances and the situation of the parties. The third standard is, the notice must not be on non-contractual documents. This is because the person receiving it can hardly expect it to contain conditions because such documents are normally not intended as contractual documents but merely as an acknowledgement of payment. Example of a non- contractual document is a toll ticket. As stated in Parker v. South-Eastern Rly Co,if a person driving through a turnpike-gate received a ticket upon paying the toll, he might reasonably assume that the object of the ticket was that by producing it he might be free from paying toll at some other turnpike-gate, and might put in his pocket unread.
• 2.
  In Chapelton v.Barry Urban District Council,the court held that the documents, which is a ticket from hiring a chair from defendant, were anything but a receipt for the money and does not form the part of the contract. Therefore,the defendant cannot rely on the exemption clause printed on the back of the ticket, because the receipt did not form part of the contract. The defendant is liable for the injuries sustained by the plaintiff. The second protection given by the court is, it will construe the exemption clauses in favor of the recipient by way of strict interpretation and contra proferentum rule. By strict interpretation of the exemption clause, the words of the exemption clause must be clear and exactly cover the liability that is sought to exclude. The courts will give the relevant words their natural, plain meaning. In the case of Malayan Thread Co Ltd Sdn Bhd v. Oyama Shipping Line Ltd,it was held that the defendant could rely on the exemption clause that have been stated clearly in the two clauses of bill of lading regarding shortage of goods due to theft. The contra proferentum rule is where the court construes the document whenever possible, in favor of the party receiving it. The court only apply this rule in cases of ambiguity, that is where the clause is open to two constructions. If there is any doubt or ambiguity in the meaning and scope of the excuse clause used, the court will construe the ambiguous phrase against the party relying on the exclusion clause in favor of the other party. In the case of Malaysian National Insurance Sdn Bhd v. Abdul Aziz bin Mohamed Daud,the defendant who was driving his father’s car was involved in an accident. The insurance company will only be liable if it is done by an authorized driver, where,it refers to the proviso, ‘Provided that the person driving is permitted in the motor vehicle or has been so permitted, and is 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.’ The court applied contra proferentum as despite the respondent had an expired license, no court had disqualified him from holding or obtaining a driving license and thus he is still an authorized driver. Raja Azlan Shah FJ held the decision.