As a
consequence of the disfavour with which the judiciary have looked on exclusion clauses,
a number of rules of construction have been developed which operate to restrict
the effectiveness of exclusion clauses. These include the following:
•
The construction of the clause
The court will determine whether the clause, on its construction, covers what has occurred. In Andrews v Singer the plaintiffs contracted to buy some new Singer cars from the defendant. A clause excluded all conditions, warranties and liabilities implied by statute, common law or otherwise. One car supplied was not new. It was held that the requirement that the cars be new was an express condition of the contract and, therefore, was not covered by the exclusion clause, which only referred to implied clauses.
•
The contra proferentem rule
This
requires that any uncertainties or ambiguities in the exclusion clause are interpreted
against the person seeking to rely on it. In Hollier v Rambler it was stated that as the exclusion clause in
question could be interpreted as applying only to non-negligent accidental
damage or, alternatively, as including damage caused by negligence, it should
be restricted to the former, narrower interpretation. As a consequence, the
plaintiff could recover for damages caused to his car by the defendants’
negligence. A more recent example of the operation of the contra proferentem
rule may be seen in Bovis Construction Ltd v Whatlings Construction Ltd The details of the contract between the two
parties were based on a standard form and a number of letters. One of the
letters introduced a term which limited the defendants’ liability in respect of
time related costs to £100,000. The plaintiffs terminated the contract on the
basis of the defendants’ lack of diligence in carrying out the contracted work.
When they subsequently sued for £2,741,000, the defendants relied on the
limitation clause. The House of Lords decided that as thedefendants had
introduced the limitation clause, it had to be interpreted strictly, although
not as strictly as a full exclusion clause. It was held that the term
‘timerelated costs’ applied to losses arising as a consequence of delay in
performance, and not non-performance. The defendants had been guilty of the
latter and were,therefore, fully liable for the consequences of their
repudiatory breach. More recently, an ambiguous clause was considered by the
Court of Appeal in The University of Keele v Price Waterhouse The appellant accountants
claimed they were not liable to pay damages to the university, which had
suffered loss of anticipated savings under a profit related pay scheme. The
appellants had given negligent financial advice in relation to the scheme. A
clause of the contract between the appellants and the university indicated
that, subject to a cap on liability of twice the anticipated savings, the
appellants accepted ‘liability to pay damages in respect of loss or damage
suffered by the university as a direct result of our providing the Services’.
The clause went on to say, ‘All other liability is expressly excluded, in
particular consequential loss, failure to realise anticipated savings or
benefits and a failure to obtain registration of the Scheme’. The appellants
contended that the second part of the clause protected them from liability.
Clearly, the clause, taken as a whole, appeared contradictory; the first part limited
liability in relation to anticipated savings, whilst the second part excluded any
such liability. The Court of Appeal interpreted the clause as meaning that the second
part applied only to exclude liability which exceeded the cap on liability in the
first part.
•
The doctrine of fundamental breach
In a
series of complicated and conflicting cases, ending with the House of Lords’ decision
in Photo Production v Securicor Transport some courts attempted to develop a rule that
it was impossible to exclude liability for breach of contract if a fundamental
breach of the contract had occurred, that is, where the party in breach had
failed altogether to perform the contract.
In Photo Production v Securicor Transport, the defendants had entered
into a contract with the plaintiffs to guard their factory. An exclusion clause
exempted Securicor from liability, even if one of their employees caused damage
to the factory. Later, one of the guards deliberately set fire to the factory.
Securicor claimed the protection of the exclusion clause. It was ultimately
decided by the House of Lords that whether an exclusion clause could operate
after a fundamental breach was a matter of construction. There was no absolute
rule that total failure of performance rendered such clauses inoperative. The
exclusion clause in this particular case was wide enough to cover the events
that took place, and so Photo Production’s action failed.
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