Laws2111 Lecture11a 2011

How to solve a problem with an exclusion clause

1. Identify the term that has been breached (verifying that a term was incorporated, or attempting to imply one if necessary) or, alternatively, identify the negligent act (if the issue in question is negligence, rather than contractual breach)
2. Identify what exclusion/limitation clauses have been incorporated into the contract (using standard incorporation rules – reasonable notice, prior dealings, etc.)
3. Interpret the exclusion/limitation clause (in context, interpreting any ambiguity contra proferentem as per Darlington) and see if it excludes liability for this particular breach.
4. If so, determine whether the exclusion clause is voided by statute (eg. As an unfair term, or for attempting to exclude a statutory guarantee)

Fundamental Breach

  • UK Doctrine. Never adopted in Australia. Here we apply the Darlington v Delco approach.
  • Rejected in UK in 1980 – not even valid there any more

Four Corners Rule

  • Applied by High Court in Sydney Council v West (pre Darlington)
  • If an action by the party attempting to rely on the clause was neither anticipated or authorised within the ‘4 corners’ of the contract, the exclusion clause would not apply.
  • Held that negligently permitted a third party to drive off in the parked car without a ticket was outside of the scope of the contract, so no application of the clause
  • However, modern approach shows that sufficiently clear wording can expand the scope of the clause to include areas outside of the 4 corners (The Antwerpen) – but it has to be very broad and clear, otherwise the Darlington Futures approach will still apply (Nisho Iwai)

Other rules/approaches

  • ‘reading down’ exemption clauses will ONLY occur if the clause is absurd, and it is necessary to give effect to it – not in the interests of ‘fairness’ (Van der Sterren v Cibernetics)
  • Assumption that clauses don’t apply to negligence, only breach of contract – unless they specifically mention negligence, or use VERY broad terms, such as ‘no damage howsoever caused’ (Canada Steamship, Commissioner of Railways (NSW) v Quinn)
  • Contra proferentem
    • Interpret ‘no warranty, express or implied’ via the narrow legal definition of warranty as a minor term, rather than the common English definition (Wallis Son & Wells v. Pratt & Haynes)
    • ‘within 14 days of arrival’ deemed not to have started if goods were never actually delivered, but rather lost en route (Beck v Szymanowski)

Statutory Control over ‘unfair’ Terms

  • No common law power to strike terms down for being unfair (despite Denning/Kirby wishing for one)
  • Legislature began approaching the imbalance/abuse of power against consumers (Trade Practices Act, Fair Trading Acts) with the latest consumer protection scheme taking effect at the beginning of 2011 (The Australian Consumer Legislation in schedule 2 of the Competition and Consumer Act)
  • Sale of Goods Act implied excludable terms – but the ACL creates non-excludable statutory guarantees
  • General ‘unfair’ term Acts began to emerge in Europe in the 70’s, then Victoria in 2003 – now part of the ACL
  • General guarantees: ss 50-64 - non-excludable under 64, voiding any term that expressly attempts to exclude them, and reading down any term that doesn’t do so expressly.

Limiting Liability

  • Contracts subject to the ACL CAN still limit liability to replacement cost of goods/services – Provided the goods/services are not for personal, domestic, or household use.

Relevant ACL Sections

Competition and Consumer Act (CCA) 2010, "Australian Consumer Law" ss. 23-28
States that: Consumer contracts with INDIVIDUALS for goods purchased WHOLLY OR PREDOMINANTLY for household use are protected against general ‘unfair terms’, provided they are not shipping/insurance contracts and the following requirements are met:
- 1. Must be a standard form contract (question of fact - onus on business to prove it isn’t a standard form contract – if they succeed, term is not unfair)
- 2. There must be a significant imbalance in rights/obligations of the parties (onus on consumer to establish – if they fail, term is not unfair)
- 3. The term must be detrimental to the consumer (if relied upon – detriment need not have actually occurred, as long as it WOULD occur) (onus on consumer to establish – if they fail, term is not unfair)
- 4. Not ‘reasonably necessary’ to protect the legitimate interests of the business (onus on business to prove it IS necessary – if they succeed, term is not unfair)
- 5. Then factor in degree of transparency and contract as a whole, as well as comparing term to the indicative list to determine if it is actually unfair (not requirements, merely indicators)

Competition and Consumer Act (CCA) 2010, "Australian Consumer Law" ss. 51-59
States that: Consumer contracts ($40,000 or less, or of a type ordinarily acquired for household use, or a vehicle that can be used on the roads) for goods have the following statutory guarantees:
- s51 Guarantee as to title (As per SoG)
- s52 Guarantee as to undisturbed possession (As per SoG)
- s53 Guarantee as to undisclosed securities etc. (As per SoG)
- s54 Guarantee as to acceptable quality (clearer than merchandisable – includes safe, durable, free from defects, acceptable appearance, and fit for ‘ordinary’ purposes)
- s55 Guarantee as to fitness for any disclosed purpose etc. (As per SoG)
- s56 Guarantee relating to the supply of goods by description (As per SoG)
- s57 Guarantees relating to the supply of goods by sample or demonstration model
- s58 Guarantee as to repairs and spare parts
- s59 Guarantee as to express warranties

Competition and Consumer Act (CCA) 2010, "Australian Consumer Law" ss. 60-63
States that: Consumer contracts ($40,000 or less, or of a type ordinarily acquired for household use, or a vehicle that can be used on the roads) for services have the following statutory guarantees:
- s60 Guarantee as to due care and skill (Services)
- s61 Guarantees as to fitness for a particular purpose etc. (Services)
- s62 Guarantee as to reasonable time for supply (Services)
- s63 Services to which Subdivision does not apply

Competition and Consumer Act (CCA) 2010, "Australian Consumer Law" ss. 64, 64A
States that: Statutory guarantees are non-excludable, but can be limited when dealing with goods or services of a kind not ordinarily acquired for personal/household use.

Competition and Consumer Act (CCA) 2010, "Australian Consumer Law" ss. 259-270
States that: The following remedies are available:
Minor failure (not such that a reasonable person would not have purchased the goods/services anyway, and still acceptable and fit for stated purpose): demand the failure be fixed
Major failure (such that a reasonable person would not have purchased the goods/services, or not acceptable/fit for stated purpose): reject the goods (demanding a refund), demand a replacement,