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What is an Exclusion clause?

1.What is an Exclusion clause?

2.What does “by notice” mean? 

3.What are the two rules for Incorporation of an Exclusion clause by notice?

4.Determine whether the Contract term is reasonable.

5.Is the Exclusion clause in our case applicable?

1.An exclusion clause can be stated as such a term in the contract, which has the power of restricting the liability of an individual. In order for an exclusion clause to be legally binding, it has to be properly incorporated into the contract. It has to be brought to the notice of the parties or be signed by the parties. In addition to this, an exclusion clause cannot reduce, extinguish or limit the applicability of a statute or a common law, and it can also not oppose such legislative frameworks. If such is present, the exclusion clause is automatically invalid. In case an exclusion clause is discovered to be such which is incorporated into the contract, after a contract has been made, the same cannot be binding and is deemed as not valid (Abbott, Pendlebury and Wardman, 2007).

This was famously established in two legal scenarios, of Thornton v Shoe Lane Parking Ltd (1971) 2 WLR 585, along with in the matter of Olley v Marlborough Court Ltd (1949) 1 KB 532. The verdict of both these case held the exclusion clause as having no legal backing. In the first case, the exclusion clause was stated at the back side of the ticket, which Thornton could not see. And in the second case, the exclusion clause was created after the main contract had already been established and so, it was held as not valid (Mulcahy, 2008).

For an exclusion clause to be lawful, the same has to be brought to the attention of the party against whom the same is inserted in the contract. In the legal scenario of Chapelton v Barry UDC (1940) 1 KB 532, as the ticket contained at the backside of it an exclusion clause, which was not brought to the attention of Chapelton when he was given the ticket, due to the absence of proper or reasonable notice, the exclusion clause could not be held as binding. The crux of another, i.e., of Thompson v London Midland & Scottish Railway (1930) 1 KB 41, was that the exclusion clause cannot be referred at some other place and had to be contained in the contract (Roach, 2016).

What does 'by notice' mean?

In cases, where an exclusion contract is contained in the contract itself, the same would be binding. And this lawful binding nature of such an exclusion clause would be upheld even if the same has not been read by the other party, as was provided in the legal scenario of L'Estrange v Graucob [1934] 2 KB 394. Here, the written contract had been signed by parties, though the same had not been read (Swarb, 2017a). However, when a representation is made regarding the terms contained in the exclusion clause, being misleading in nature, the rule given in is not upheld, as was highlighted in the case of Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805 Law Resources, 2017a).

The Unfair Contract Terms Act, 1977, through its various sections contains the provision regarding exclusion clause. Section 3 of this act provides that the liability of the violating individual has to be written as standard terms of the business. As per this section, the exclusion clause is not valid till the time it can fulfill the need of it being reasonable (Legislation, 2017).


Section 11 of this act provides the provisions pertaining to the reasonableness of the exclusion clause. This section presents that the term would have met this obligations, when the same had been reasonable and fair point to have been included in the contract based on the prevalent conditions, which were either known or should have been known to the arty to the contract, when the same was formed. Hence, both of the points of reasonableness and fairness has to be established at the time of formulation of contract and cannot be mere demonstration of knowledge of the events occurring in reality. The reasonableness can be further determined through Section 2 of this act, which contains the guidelines for the reasonableness of the contract. So, the reasonableness and proper incorporation of the exclusion clause are its limitations (Legislation, 2017).

In this case, the exclusion clause was not incorporated in the contract. Further, it was not brought to the attention of the parties and was stated at some other place. A reasonable individual would not have known the existence of such an exclusion clause, unless the same was brought to his notice. Hence, due to lack of proper incorporation and reasonableness, the exclusion clause in this case is invalid (Marson and Ferris, 2015).

2.Negligence is defined as being a breach of duty of care, which was owed by an individual to another and the result of which is in the form of injury, loss or harm to such other person. In short, it is the failure of the obligation on part of the individual who owed a duty of care to another (Latimer, 2012). For making a case of negligence, it has to be shown that the loss was foreseeable and a direct causation between the injuries received to the other party and the breach of duty of care. Once a case of negligence is proven, the injured party can apply for damages given as monetary compensation (Harvey and Marston, 2009).

What are the two rules for Incorporation of an Exclusion clause by notice?

For establishing a case under negligence, the first element which needs to be present is the duty of care (Legal Services Commission, 2016). A threefold test was given by the Court of Appeal in the matter brought towards it under Caparo Industries plc v Dickman [1990] 2 AC 605, 618. As per this test, there needs to be a reasonable foreseeability, there has to be proximity amid the two parties, and lastly, there has to be a fairness, justness and reasonableness in the imposed liability (Lunney and Oliphant, 2013). Due to the damages not being foreseeable, in Bolton v. Stone [1951] AC 850, [1951] 1 All ER 1078, Stone was not negligent and no damages were awarded to the plaintiff (Swarb, 2016a). Another landmark case in this regard is the case of Donoghue v Stevenson [1932] UKHL 100. In this case, the manufacturer was held negligent for failing in ensuring that the ginger beer bottle was safe for consumption, as a dead snail was found in such bottle, which made the plaintiff sick (British and Irish Legal Information Institute, 2017).

The next step deals with showing that a breach of this duty occurred. In a leading matter of Paris v Stepney Borough Council [1951] AC 367, the court provided that the Council failed in their duty of care, by not providing Paris with the required protective gear and which resulted in his good eye being blinded (Martin and Lancer, 2013). In Vaughan v Menlove (1837) 132 ER 490 (CP), as the defendant did not consider the warnings regarding a possibility of fire owing to improper ventilation, he was held in negligence (Commonwealth Legal Information Institute, 2017).

The final step is to show that there is a direct causation between the undertaken negligence and the injury. If the damages are too remote, a case of negligence would not hold. In the Wagon Mount case or the Overseas Tankship (UK) Ltd v Morts Dock and Engineering Co Ltd [1961] UKPC 2, due to the remoteness of damages, the damages were not awarded for the negligence which took place (H2O, 2016).

The elements of breach of duty include likelihood of loss, as established in Bolton v Stone, the seriousness of loss, established through the Wagon Mound case, the costs of prevention, which was established in the case of Latimer v AEC [1953] AC 643 and the utility of the conduct of the defendant as held in Watt v Hertfordshire [1954] 1 WLR 835. In Latimer v AEC, the defendant had taken reasonable precautions and hence, there was no breach of duty. In Watt v Hertfordshire, the emergency nature of the situation and the conduct of defendant which required saving of lives more important than taking the precautions, held that no breach of duty could be present (Oughton and Harvey, 2015).

Determine whether the Contract term is reasonable.


Some of the defenses which can be used in cases of negligence include the eggshell skull rule and contributory negligence. The first one relates to the frailty of the party injured. And the other one relates to the breach of duty by the aggrieved party themselves, which they owed to themselves (Rush and Ottley, 2006).

The test for damages includes the “but for” test, Barnett v Chelsea & Kensington Hospital [1969] 1 QB 428, whereby it is compared whether such loss would have occurred if the act of defendant had not taken place. If such would still have happened, the defendant is not liable. The foreseeability of damages is another test for damages, as held in Wagon Mound and Vaughan v Menlove case. Another test is the substantial factor test as per which if a number of causes could have resulted in harm, than any such cause would be held as a substantial factor for the liability (Strong and Williams, 2011).

3.In this case, Jess was the preparer of the drink, who had to ensure that while preparing the drink, she was careful. She had to make certain that she did not make any mistake. A mistake, like the one she made, would have resulted in loss. So, the three fold test is satisfied here, due to the presence of foreseeability of an injury being caused if the wrong ingredients were mixed. There was proximity between Jess and Bill and, if a penalty is imposed on Jess, it would be fair and just for the injury caused to Bill.

To establish the breach, the “but for” test can be applied. The injury which was caused to Bill would not have occurred in absence of mistake undertaken by Jess. Jess failed to take the taken reasonable precautions and her conduct could not justify her actions. Hence, based on the tests mentioned in previous segment, there was a breach of duty by Jess.

For establishing the cause of damages due to breach of duty on Jess’s part, the “but for” test is again applicable. This is coupled with the foreseeability of a damage resulting from the undertaken negligence. And lastly, this was amongst one of the factors which could have triggered the high blood pressure of Bill.

Due to the presence of all the requisite factors of negligence under this case, Bill can sue Jess for damages in form of monetary compensation, as a result of him being sick, due to her breach of duty of care.

Is the Exclusion clause in our case applicable?

4.A liability arising out of the agency law, which is a strict liability, is held under the doctrine of vicarious liability. Under this, the employer is held responsible for the work done by its employees, to a third party. This principle is drawn from the agency law which holds a principle liable for the acts of their agent to a third party. In order to establish vicarious liability, there needs to be presence of three elements, i.e., the relationship of an employer-employee, the occurrence of negligence, and in the course of employment. The rationale behind this is that the third party is unaware about the authority of the employee and so, the employer has to be liable for the work done on his behalf (Giliker, 2010).

In order to establish the employer-employee relationship, certain tests can be applied. The first one is the control test as held in the case of Zuijs v Wirth Brothers Pty Ltd [1955] HCA 73. As per this test, the exercise of control determines this relationship, instead of an actual control (Australasian Legal Information Institute, 2017). A part and parcel test was given in the case of Stevenson, Jordan & Harrison Ltd v MacDonald & Evans [1952] 1 TLR 101. The different between a contractor and employee was held to be the difference between contract of service and a contract of services. In the former, the individuals are employed under a contract; and in the latter, the individuals are employed under a contract of services. In the first, it can be stated that something has to be done and in a particular manner, and in the latter, it is stated what is to be done (Swarb, 2017b).

Another test in this regard was given in Stevens v Brodribb Sawmilling Co Pty Ltd [1986] HCA 1, which is the multiple indicia test, and which was later affirmed in Hollis v Vabu Pty Limited (2001) 207 CLR 21. As per this test, the relationship had to be seen in totality to establish the presence of employer-employee relationship (Find Law, 2017). A mixed test was established in Lee Ting Sang v Chung Chi-Keung [1990] UKPC 9. As per this, the use of own tool or taking business risk, along with such factors had to be regarded in light of economic reality to differentiate between the two (Swarb, 2016b). Wearing uniform is a sign of presence of this relationship, as was held in Humberstone v Northern Timber Mills (1949) 79 CLR 389 (Swarb, 2016c).

What is negligence?


In order for Bill to hold Thomas and Zhang Wei responsible, for the negligence of the Jess while making the coffee at Artillery, there is a need to adopt the principle of vicarious liability. But to show that, the employer-employee relationship, has to be established. The monthly salary given to Jess, payment of taxes, along with wearing of uniform shows an employer- employee relationship. However, the lack of holidays or sick days and health care makes her an independent contractor. The employer-employee relationship is further supported by use of equipment and recipes of Artillery and hence, Jess was an employee of Artillery.

Due to presence of employer-employee relationship, negligence and occurrence during work, Bill can sue Thomas and Zhang Wei for vicarious liability

5.Remedies are the relief awarded by the court to the party whose side is successfully established. And they are not punishing in nature, they are just meant to put the individual as he was before the negligence occurred (Latimer, 2012). In other words, when a case of negligence takes place, the injured party is awarded certain damages, to put the individual in such a place, as they would have been, in case the negligence had not taken place, as was held by the House of Lords, in Addis v Gramophone [1909] AC 488 (E-Law Resources, 2017b). Parke B in Robinson v Harman (1848) 1 Ex Rep 850 held that breach damages have to be awarded in such a form that the victim is able to compensate the losses incurred by them (Swarb, 2015).

There are two forms of remedies which can be awarded for negligence, the first is damages and the second is injunctions. The damages can be further subdivided into two parts, the one for direct loss and the other for the indirect one (Statsky, 2010). The direct loss relates to the monetary compensation as was held in Donoghue v Stevenson. And indirect losses relate to the damages for mental distress, as were awarded in the case of Baltic Shipping v Dillon High Court of Australia (1993) 176 CLR 344 (Holmes, 2017).


The injunctions held in stopping an individual from undertaking negligence. These can be prohibitory mandatory or interim injunction. The House of Lords in case of Morris v Redland Bricks Ltd [1970] AC 652 held that a mandatory injunction could not be granted till the time there was a strong possibility that a serious damage would be caused to claimant if the same is not given (Swarb, 2017c). In American Cyanamid v Ethicon [1975] AC 396, 408, it was held that for interim injunction, the merits of the case are not investigated unless a serious question is to be contended in the court based on the balance of convenience (Ramlugon, 2014).

What are the legal requirements for establishing negligence?

In this case, Bill can claim for the direct damages, in form of monetary compensation. The indirect damages could also be claimed upon by Bill, he lost his wallet and insurance card, which caused him mental distress. An injunction order can also be made by Bill against Jess, to ensure that she does not work again in such a negligent manner.

References

Abbott, K., Pendlebury, N., and Wardman, K. (2007) Business Law. 8th ed. London: Thomson.

Australasian Legal Information Institute. (2017) Zuijs v Wirth Brothers Pty Ltd [1955] HCA 73; (1955) 93 CLR 561 (15 December 1955). [Online] Australasian Legal Information Institute. Available from: https://www.austlii.edu.au/au/cases/cth/high_ct/93clr561.html [Accessed on: 02/05/17]

British and Irish Legal Information Institute. (2017). Donoghue v Stevenson [1932] UKHL 100 (26 May 1932). [Online] British and Irish Legal Information Institute. Available from: https://www.bailii.org/uk/cases/UKHL/1932/100.html [Accessed on: 02/05/17]

Commonwealth Legal Information Institute. (2017). Vaughan v Menlove. [Online] Commonwealth Legal Information Institute. Available from: https://www.commonlii.org/uk/cases/EngR/1837/424.pdf [Accessed on: 02/05/17]

E-Law Resources. (2017a) Chapelton v Barry UDC [1940] 1 KB 532. [Online] E-Law Resources. Available from: https://www.e-lawresources.co.uk/cases/Chapelton-v-Barry.php [Accessed on: 02/05/17]

E-Law Resources. (2017b) Addis v Gramophone [1909] AC 488 House of Lords. [Online] E-Law Resources. Available from: https://e-lawresources.co.uk/cases/Addis-v-Gramophone.php [Accessed on: 02/05/17]

Find Law. (2017) What is an independent contractor and how does an independent contractor differ from an employee?. [Online] Find Law. Available from: https://www.findlaw.com.au/articles/4515/what-is-an-independent-contractor-and-how-does-an-.aspx [Accessed on: 02/05/17]

Giliker, P. (2010) Vicarious Liability in Tort: A Comparative Perspective. Cambridge: Cambridge University Press.

H2O. (2016) Wagon Mound (No. 1) -- "The Oil in the Wharf Case". [Online] H2O. Available from: https://h2o.law.harvard.edu/collages/4919 [Accessed on: 02/05/17]

Harvey, B., and Marston, J. (2009) Cases and Commentary on Tort. 6th ed. New York: Oxford University Press.

Holmes, R. (2017) Mental Distress Damages For Breach Of Contract. [Online] Victoria University of Wellington. Available from: https://www.victoria.ac.nz/law/research/publications/vuwlr/prev-issues/pdf/vol-35-2004/issue-3/holmes.pdf [Accessed on 02/05/17]

Latimer, P. (2012) Australian Business Law 2012. 31st ed. Sydney, NSW: CCH Australia Limited.

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Swarb. (2016b) Lee Ting Sang v Chung Chi-Keung: PC 8 Mar 1990. [Online] Swarb. Available from: https://swarb.co.uk/lee-ting-sang-v-chung-chi-keung-pc-8-mar-1990/ [Accessed on: 02/05/17]

Swarb. (2016c) Humberstone v Northern Timber Mills; 16 Nov 1949. [Online] Swarb. Available from: https://swarb.co.uk/humberstone-v-northern-timber-mills-16-nov-1949/ [Accessed on: 02/05/17]

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Swarb. (2017c) Morris v Redland Bricks Ltd: HL 1969. [Online] Swarb. Available from: https://swarb.co.uk/morris-v-redland-bricks-ltd-hl-1969/ [Accessed on: 02/05/17]

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