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Common Law : Company Law Position

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Describe about the Common Law for Company Law Position.




From the outset it is important to underscore the fact that the terms of an agreement of a contract must be clear enough and should not reflect any ambiguity. The general position in contract law is that when the contract has been signed it becomes implicit that the one has read and understood the terms that have been reflected in the contract.[1] The courts in Australia have also applied this common law precept in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd[2] where the court affirmed the position that where a person does not read or understand the terms that that have been stated in a contract but has signed the contract, the fact that they did not read or comprehend becomes immaterial.

The exclusion clause in a contract will be the key principle in discussion in this paper and its operation and effect after the contract has been signed. An exclusion clause can be defined as a term that is placed in a contract that excludes one of the parties in the agreement from liability incase harm or injury is suffered. However , as will be noted in this discussion there are rules that have been developed to protect consumers from the application of harsh exclusion clauses clause that take away a material benefit in a contract.


Sydney City Council v West[3]

West went to park his car at the council and before he did so he was issued with a ticket that contained an exclusion clause excluding the council from liability. Unfortunately somebody came with a similar ticket after West had packed the car and stole the car. On learning this West brought a claim fro breach of contract and the council sought to rely on the exclusion clause. The issue that was before he court was whether the clause was effective and operative and whether it covered the loss the injury and loss that had visited west.

Thornton v Shoe Lane Parking[4]

The plaintiff bought a ticket through a vending machine. The ticket stated in the terms that the defendant will not be liable for any harm that may be caused by their negligence. Unfortunately the defendant was harmed and the car was damaged to in this case the issue that was before the court was whether sufficient notice of the exclusion clause had been brought to the attention of the plaintiff before the contract was made.

Point of Divergence and Convergence between the two cases

It should be noted that the cases above involved a dispute in an exclusion clause that was in the contract however there were two different legal principles that were used in the two cases to determine the effectiveness of the exclusion clause.

Scope and limit of the exclusion clause

It is the legal position that for an exclusion clause to be operational it must have contemplated the loss that has been ben brought to question. The leading case that was ion the Sydney case is Andrews Bros ltd v Singer Cars[5] in which the defendant had put a clause in the contract that stated that they will not be liable incase they breach the implied terms of the contract. The clause expressly stated that the terms implied could either be implied by common law or by statute. The claimant had bough a car from the defendant and realized that the car was new. On bringing the claim against the defendant they sought to rely on the exclusion clause but the court held that the term that the car was supposed to be a new car was an express term in the agreement and therefore the exclusion clause did not cover such a liability. In the case of Sydney, the court also found that the exclusion clause that was stated in the agreement did not cover the loss that West and suffered and therefore the council was liable fro the theft of the car.

Another fundamental rule that was established in the case of Gibaud v Great Eastern Railway Co[6] is the ‘Four corners rule’ that states that the exclusion clause in a contract will not cover a loss or injury if the defendant in such a claim does an act that is contrary to his contractual obligations. Further, the rule is to the effect that the exclusion clause will not cover an act of the defendant that has not been granted express authority by the contract. In the Sydney case it can be noticed the act of theft was not either permitted or authorized by the agreement and did the exclusion clause in the wording of its statement foresee such a loss or injury. Fundamentally it can also be stated, the exclusion clause that was in issue in the case of Shoe Lane Park only anticipated an injury to the person and not the property. In that case it was held that those defendants could only be liable fro the injury cause to the defendant and not the damage on the car.


Reasonable Notice

The general rule is that for the exclusion clause to be operative the notice explaining the existence of such a clause must be brought to the attention of the other party before the contract is made. In fact the fundamental question in the case of tickets is whether, the case that was used to persuade the court in the case of Shoe Lane Park is Chapelton v Barry UDC[7] where the plaintiff was injured by a chair that he sat on after purchasing a ticket. The ticket had an exclusion clause that excluded the defendant from liability when anyone is harmed by the chairs. The court held that the exclusion clause was not in the contract because any reasonable person would not expect that the ticket contained any clause. As such the court ruled that there was no sufficient notice of the exclusion clause. Similarly, in Shoe Lane Park case it can be stated that there was no sufficient notice of the exclusion clause because the ticket was issued after the contract was made. The same can be argued for the Sydney case because the tickets are issued after a sufficient consideration has been made. It can be stated that the terms of the agreement in both cases were introduced after the contract was made.

The two cases applied the case of Oley v Marlborough Court[8] where the plaintiff booked into a hotel and paid for all the expenses but unfortunately lost his court during his stay in the hotel. The hotel management claimed that there was an exclusion clause at the behind of the door in the hotel room. It was held that the exclusion clause was brought to the attention of the claimant after the agreement was made and there was no sufficient notice of the clause before the agreement. 

Implied Terms

The challenging question that is embedded in this discussion is whether an implied term of a contract can extinguish the effect of the exclusion clause. The Australia position is currently guided by the common law position that was set in Codelfa Construction Pty Ltd v State Rail Authority of NSW[9] that a term will be implied in the contract of it is just , reasonable and equitable  to do so it must have been perceptible that there will be implied terms in the agreement. The Australian consumer law [10] has replaced the word implied terms with consumer guarantees and they have ben explained in section 54 and 55 that states that the service or goods must be of an acceptable quality. In this sense it can be argued that the terms will be applied in the case where the exclusion clause in the contracts takes away a material benefit of the contract. This means that the exclusion clause should have a deleterious effect on the contract rather a mutual benefit.


The idea inherent in both cases is that the law applicable the issue of ticket should be reformed and the terms that are normally placed in the tickets should be brought to the attention of the consumer before they make payments or before they enter into an agreement. This will help the consumers decide if they will use the service depending on the effect pof the exclusion clause that they will have learnt. Additionally, it is recommended that parties who seek to rely on the exclusion clause must ensure that the clause is clear and does create an ambiguity in interpretation so that the courts can easily deduce the limit and scope of the exclusion clause.




Andrews Bros ltd v Singer Cars [1934] 1 KB 17

Chapelton v Barry UDC (1940) 1 KB 532

Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337

Gibaud v Great Eastern Railway Co[1921] 2 KB 426

L'Estrange v F Graucob Ltd [1934] 2 KB 394

Oley v Marlborough Court [1949] 1 KB 532

Sydney City Council v West (1965) 114 CLR 481

Thornton v Shoe Lane Parking [1971] 2 WLR 585 Court of Appeal

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52


Australia consumer law (2010)


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