Exclusion Clauses And Unfair Contract Terms: Legal Analysis

Mandrake was a magician who had been on tour together with an assistant. He left four suitcases at the parcels office at what is now Southern Cross Station in Melbourne. The suitcases contained various items used in an ‘escape illusion’. Mandrake paid $5 for each suitcase deposited and received a ticket for each one.  He then left saying that he would send instructions for their dispatch. Two weeks after their deposit and before Mandrake had sent instructions for the dispatch of the suitcases, his assistant persuaded the clerk in the parcels office to let him open the suitcases, even though he was not in possession of any tickets. The assistant took several items and was later convicted of larceny.

Mandrake sued the railway company for damages for breach of contract, and the company pleaded the following item, which was contained in the ticket and which stated that it was ‘not liable for loss, misdelivery or damage to any articles where the value was in excess of $10 unless at the time of the deposit of the article an extra charge was paid’. No such declaration or payment had been made. Do you think that the railway company could successfully rely on the exemption clause to protect itself from an action by Mandrake.

John, an unemployed 19 year old who left school at 14, entered into a contract with Brown Suppliers Pty Ltd. The contract stated that John would receive a different electrical appliance each month for the next 12 months. The goods are supplied at whole sale price but with a 20 percent surcharge for interest and service. John finds out that he is paying more for the appliances than the normal price in the stores, and feels the contract is unfair. Advise John what his right are, if any, under the ACL

Case Study 1: Railway Company vs Magician

Issue

Whether the railway company could successfully rely on the exemption clause to protect itself from an action by Mandrake?

Law

When one party (offeror) makes an offer to another party (offeree) which is confirmed by such other party then there is acceptance. This acceptance supported with consideration, legal intention and capacity makes a contractual relationship amid such parties. ( Moles 1998)

The parties to the contract are obligated to comply with the terms of the contract in order to avoid any kind of consequences. One of the most promising terms which are made part of the contract by the parties in order to limit or exclude the liabilities is an exclusion term.

Exclusion terms are those terms that are incorporated by the contract parties to limit or exclude an obligation of one of the party to the contract that might arise because of the occurrence of some uncertain event that is anticipated by the parties.

The exclusion terms are normally found upon the tickets and thus a specific analysis is done on the applicability and legality of exclusion terms of made part on the tickets.

In ticket cases, terms are normally made part of the ticket which is applicable upon the recipient of the ticket. Exclusion terms are also made part of the tickets which limits the liability of the issuer of the ticket on the incurrence of any predetermined event mentioned on the ticket itself.

Normally the terms which are made part of the ticket are enforceable upon the holder of the ticket irrespective of the fact whether the terms are read by the recipient or not? However, as per Parker v.The South Eastern Railway Co (1877), the courts consider the exclusion terms made part of the tickets valid on certain basis: ((Heffey et.al 1998)

1. If the exclusion term made part of the tickets is within the knowledge of the receipt then he is bound by the same otherwise not
2. If the terms that are made part of the ticket are those which can be reasonably anticipated by a normal prudent man, then, such terms are binding irrespective of the fact whether the recipient is in the knowledge of the term or not.

• The courts do not consider the exclusion term made part of the tickets as unfair but considers that the terms should not be very stringent;

1. If a term is made part of the ticket which is not usual, then the issuer must make every reasonable effort to bring the exclusion term in the notice of the receipting and is held in Interfoto Picture Library Ltd v. Stiletto Visual Programmes Ltd[1989];
2. In Henderson & others V Stevenson1875 and J Spurling Ltd v Bradshaw [1956]  it was held that the terms if are not reasonable so as to be determined by normal prudent man then reasonable efforts are to be made to bring the same in the notice of the recipient.
3. In Richardson, Spence & Co v Rowntree[1894] and Thompson v London, Midland and Scottish Railway Co Ltd [1930] , the court held that of the plaintiff is illetrate or is not capable to understand the terms then it is necessary that the terms must be communicated.

• The liability in case of negligence can be excluded but the same must be made part of the exclusion clause specifically.
• Also, the terms must be communicated before the formation of any contractual relationship and is held in Thornton V Shoe Lane Parking Ltd

The law is now applied.

As per the facts,

Mandrake was a magician who along with his assistant was on a tour. He left four suitcases at the parcels office which contains items used in ‘escape illusion’. Mandrake paid $5 for each suitcase deposited and received a ticket for each one. He also submitted that he will sent instruction for the dispatch. The assistant without any instruction and tickets persuaded the clerks of the office to let him open the suitcases. The assistant took several items and was later convicted of larceny.

Mandrake sued the company for damages, but the company relied on an exclusion clause that was made part of the ticket. According to the clause the company was not liable for any loss, damage or misdeliver to any articles provided the value of the items was in excess of $10 unless at the time of the deposit of the article an extra charge was paid’. However, no such declaration was made.

Case Study 2: Unemployed Individual and Supplier of Electrical Appliances

Now, generally as per Parker v. The South Eastern Railway Co (1877) if an exclusion term is made part of the ticket then the term is valid irrespective of the fact whether the same is read by the recipient or not.

Thus, Mandrake must be bound by the term.

However, as per Interfoto Picture Library Ltd v. Stiletto Visual Programmes Ltd [1989] if an unusual term is made part of the receipt then the defendant must make extra efforts to bring the term in the notice of Mandrake. Since the exclusion term that was made part of the receipt was very unusual, thus, it is binding on the company that extra efforts must be made by it to bring the term in the notice of Mandrake. Since no such efforts are made thus, the exclusion term is not binding in nature.

The company cannot shed away with its liability by relying on the exclusion clause that was made part of the ticket as there was no reasonable efforts that are made by the railway company.

Conclusion

Thus, the exclusion term that was made part of the ticket was unusual in nature and it is thus obligatory on the railway company to bring the said clause in the notice of Mandrake so that the clause can be made enforceable against him.

Issue

Whether John has any rights giant Brown Suppliers Pty Ltd under the Australian Consumer Law considering that the contract established is an unfair contract?

Law

The Australian Consumer Law is the enactment that is made to protect the interest of the consumer from the hands of the manufacturers, suppliers, and importer.  One of the significant law that is made part of ACL is the law that deals with unfair contract terms.

Section 23 (3) of ACL submits that the unfair contract terms are applicable to the contracts that are consumer contracts. A consumer contract is such contract which is made amid the oar ties for the supply of services and goods or the grant or sale of an interest in land to a person who seek its wholly or partially for domestic, personal, consumption or household use.

Also, the unfair contract term law is applicable to those consumer contracts those are standard form contracts. Generally a standard form contract is such a contract which is framed by one party to the contract and is imposed upon the other party to the contract without any negotiations. The only option to the other party is either to abide by the contract terms or leave the contract.  As per section 27 (2), there are various factors that are considered in order to understand whether the contract is a standard consumer contract or not, that is:

1. When only one of the party to the contract has all the bargaining power in relation to the activities of the contract then such contracts are standards consumer contracts;
2. When two parties enter into a contract but the terms are incorporated by one of the party to the contract without any negotiations or discussions;

• When one party to the contract has no option either to reject o accept the contract or its terms;

1. The court would consider whether opportunity is given to the other party to the contract to negotiate the terms of the contract;
2. Whether the party who is framing the contract has taken into account the special characteristics of the other party.

These are some of the factors that determine whether the consumer contract is a standard form of contract or not.

Now, if any unfair term is made part of a standard form of contract then such contract is void and is inoperative. If the unfair term cam be excluded then the contract will operate excluding the unfair term. But, it is important to understand the concept of unfair contract term. As per section 24 (1)  a term is considered to be unfair when it results in creating imbalance in the rights and obligations of the parties and the term is not required to pretest the legitimate interest of the party who will gain from the term and the term will be disadvantageous to the other party and is analyzed in Director of Consumer Affairs Victoria v AAPT Ltd (Civil Claims) [2006].

So, as per section 23 (1), if a contain form of contract contain any unfair term then such term is void and is held in Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia [2002]. (Thampapillai et.al 2015)

The law is now applied.

Application

Now, as per the facts, John was a 19yera unemployed person who had left his school when he was 14. He enters into a contract with Brown Suppliers Pty Ltd. one of the terms of the contract was that John would receive a different electrical appliance each month for the next 12 months but the price (whole sale) is paid along with extras 20 % surcharge for interest and service.

Now, John finds out that he is paying more for the appliances than the normal price in the stores, and feels the contract is unfair. But, the contract is unfair only when it is a consumer contract as per section 23 (3).

It is submitted that the contract that is made amid John and Brown Suppliers Pty Ltd is a consumer contract as per section 23 (3) as the contract is for the sale of goods of electrical appliance which is used by John for domestic purpose. Thus, the contract is a consumer contract.

Now, it is submitted that John can only treat the contract as an unfair contract provided the contract that was established by him with Brown Suppliers Pty Ltd is standard form of contract as per section 27 (2). It is submitted that there was no negotiations that was entered amid John and Brown Suppliers Pty Ltd before the formation of the contract. Also, Brown Suppliers Pty Ltd did not tale in account that John was a school dropout and was unemployed and no opportunity is given to him regarding the discussion on the terms of the contract. Thus, the contract is a standard form of contract that is made amid John and Brown Suppliers Pty Ltd.

It is no also submitted that Brown Suppliers Pty Ltd has incorporated a term according to which John has to pay the price (whole sale) along with extras 20 % surcharge for interest and service. Now, this term is made part of the contract by without any negotiation in to s and will bring gain to Brown Suppliers Pty Ltd and is not required to protect the legitimate interest of Brown Suppliers Pty Ltd. also John will face detriment if the term is imposed. Thus, there is inequalities in parties interest and thus as per section 24 (1), the term is unfair term.

So, Brown Suppliers Pty Ltd has incorporated an unfair contract term in a standard form of consumer contract, thus, the contract is treated as unfair., since the contract cannot be operated without this term so whole of the contract must be declared as void.

Conclusion

John can sue Brown Suppliers Pty Ltd and declare the contract made amid them as unfair as an unfair contract term was made part of a standard contract which is not divisible. So, john can sue Brown Suppliers Pty Ltd and rescind the contract.

Reference List

Books/Articles/Journals

Thampapillai et.al, 2015, Australian Commercial Law, Cambridge University Press.

Case Laws

Director of Consumer Affairs Victoria v AAPT Ltd (Civil Claims) [2006] VCAT 1493

Henderson & others V Stevenson 1875 2 R (HL) 71.

Interfoto Picture Library Ltd v. Stiletto Visual Programmes Ltd [1989] 1 QB 433.

J Spurling Ltd v Bradshaw [1956] 1 WLR 461

Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia [2002] FCAFC 197

Parker v.The South Eastern Railway Co (1877) 2 CPD 416.

Richardson, Spence & Co v Rowntree [1894] AC 217.

Thompson v London, Midland and Scottish Railway Co Ltd [1930] 1 KB 41.

Thornton V Shoe Lane Parking Ltd 1971 2 QB 163

Online Material

Heffey et.al.Contract commentary and Material, 8TH ED 1998 (LBC Information Services).Retrieved September 14, 2011 from file:///C:/Users/Administrator/Desktop/130911-contract-back%20of%20the%20receipt/TERMS%20-%20IDENTIFICATION%20OF%20THE%20TERMS.htm; and

Moles. N. R (1998) Contract Law Lecture - Formation of Contract - Offer and Acceptance, <file:///C:/Users/Administrator/Desktop/130911-contract-back%20of%20the%20receipt/Contract%20Law%20lecture%20%20Contract%20Formation%20-%20Offer%20and%20Acceptance.htm>.