Exclusion Clause Essay

2398 Words Mar 26th, 2013 10 Pages
Joe (“J”) is demanding compensation from Fred (“F”) for the damage caused by Fred’s paints. F is attempting to exempt himself from the liability by the exclusion clause written on the receipt and the sign. The effectiveness of the exclusion clauses depends on several factors. Firstly, whether the exclusion clause belongs to a term of contract will be determined. Secondly, reasonable steps leading to the notice of exclusion clause to J will be decided. Thirdly, the words of exclusion clause will be carefully analyzed. Finally, the result as to the exclusion clause will be carefully suggested as well as other possible results if a different situation happened.

The contractual effectiveness of exemption clauses
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The interpretation of exclusion clause
An exclusion clause must be examined firstly for its language and when that language is not clear, the clause is construed contra proferentem. In the case Alex Kay Pty Ltd v General Motors Acceptance Corp and Hartford Fire Insurance Co, ‘any breach of contract’ is regarded as ambiguous, and consequently the clause did not apply.[10] F’s exclusion clause states ‘Fred is not liable for any loss or damage caused by the paint, regardless of how such loss or damage may by caused’. ‘Regardless of how such loss or damage may by cause’ is not clear enough to distinguish the duties of the two parties. J has two losses due to the recent purchase of paint from F. The first loss was caused by negligent manufacture by F and J paid $40,000 to his client. The second one is caused deliberately by J’s employee putting some wrong substance into paint and cost J $70,000. The first damage directly resulted from F’s poor quality paint. If a party wishes to exclude liability for negligence, it must be expressed clearly. However, there is no clear words in the clause can be relied by F to exclude his negligence manufacture. Thus, the court might not apply the exclusion clause for the first damage.

With regard to the second damage, it is actually by an employee’s personal grievance of F, which is out of F’s prediction. According to the four corners rule, a party who undertakes an obligation under a contract and has breached that obligation

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