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LEGT 1710: Assignment 2


Introduction
Winston is attempting to sue Ron for compensation for financial loss that resulted from the incident
that occurred in the Question. Whether Winston is bound by the words on the documents will
depend on the terms of the contract, more specifically the validity of the exclusion clause.
a) To determine whether Winston is bound by the words on the receipt or sign, it must be decided
whether the exclusion clause is effective or ineffective. This involves looking at whether the exclusion
clause is incorporated into the contract and if so does it cover the liability sought to be avoided by
Ron. If the exclusion clause is proved to be effective, then Winston may be found to be bound by the
words on the receipt or sign.
Is the Exclusion Clause a Term Incorporated into the Contract?
For an exclusion clause to be effective the document in which it is found must first be contractual in
nature. This can be defined by a signed document and/or provision of reasonable notice and timing
of notice.
In the Question, the receipt and sign on which the exclusion clause was found was not a signed
document. By drawing on the principle from the case of L Estrange v Graucob 1, when a document
containing contractual terms is signed the party signing it is bound,

regardless of whether they

are aware or unaware of the terms. It is arguable that as Winston had not signed any documents,
the exclusion clause was not incorporated into a contract and hence Winston is not bound to any
terms.
Nevertheless an unsigned document may still be contractual if it can be proven that a reasonable
person would expect to find contractual terms in the document, 3 by examining whether an alleged
party was aware, or ought to have been aware, of its terms and conditions. 4 Following the cases of
1 LEstrange v Graucob (F) Ltd [1934] 2 KB 394
2 LEstrange v Graucob (F) Ltd [1934] 2 KB 394
3 Khoury. D, Yamouni. Y (2010). Understanding Contract Law. 8th ed. Australia: LexisNexis
Butterworths. pg169-190.
4 LEstrange v Graucob (F) Ltd [1934] 2 KB 394

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Chapleton v Barry Urban District Council 5 and Causer V Browne6, unsigned documents in the form of
a receipt or voucher were found to be understood as only a voucherand not understood to contain
conditions exemptingcommon law liability. 7 Hence it can be argued that the receipt Winston
received was merely an evidence of payment, and a reasonable person would not expect it to
contain contractual terms.
However the extent to which the reasonable person would expect an exclusion clause on the
document is arguable. It must now be determined whether reasonable notice was given at
reasonable timing, in order to determine if the exclusion clause was sufficiently placed to the
attention of the buyer. Ron had in fact displayed the exclusion clause on a sign on the counter of his
sales area (hence notice was given before the parties entered into the contract) and on the receipt
(hence notice was given at the time of purchase). These facts are similar to the case of Thompson v
London, Midland & Scottish Railway Co 8, where notice was given before the entry to a contract (on
notices placed around the train station) as well at the time of purchase (on the ticket). It was held
that reasonable constructive9 notice was given, and so the plaintiff was bound by the exclusion
clause. Hence an exclusion clause may be valid if handed to the person to be bound before or at the
time of the contract and/or on a prominent public notice before or at the time of contract. 10
Furthermore on the basis of previous dealings, it can be argued that knowledge of the conditions
may be imputed on Winston. Winston had been dealing with Ron regularly for two years, providing
him ample opportunity to gain knowledge of the exclusion clause. 11 Following the case of Balmain
New Ferry Co Ltd v Robertson12, the regularity of his dealings with the defendant, gave him sufficient
5 Chapleton v Barry Urban District Council [1940] I KB 532
6 Causer v Browne [1952] VLR I
7 Causer v Browne [1952] VLR I
8 Thompson v London, Midland & Scottish Raliway Co [1930] 1 KB 41
9 Latimer. P (2012). Australian Business Law. 32nd Ed. Australia: CCH Australia Limited.
10 Olley v Marlborough Court Lts [1949] 1 KB 532
11 Balmain New Ferry Co Ltd v Roberston [1906] HCA 83
12 Balmain New Ferry Co Ltd v Roberston [1906] HCA 83

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occasions to read the notice. Hence this case may act as a precedent. The failure to take up the
opportunity of reading the terms will not avert the assumption made that the party was unaware. 13
It is noteworthy that the consistency and regularity of the dealings is vital to inferring the party had
knowledge of the terms. In the case of McCutcheon v MacBrayn14, the lack of consistency in signing
the document failed to make the clause valid as well as in the case of Hollier v Rambler Motors15 the
lack of regularity of the dealings, only three to four occasions during a five year period, was not
sufficient opportunity. It can be argued that Ron was consistent in providing the receipt and
displaying the sign throughout his dealings with Winston and as the dealings occurred twice a month
over a two year period, this gives ample opportunity for Winston to gain knowledge of the notices.
Hence the exclusion clause was effectively incorporated into the contract as Ron had in fact provided
sufficient, reasonable notice that had been brought to Winstons attention. This is further reinforced
by the regularity and consistency of their previous dealings. It can be concluded that Winston is
bound by the words in the sign and receipt as the terms were incorporated into the contract.
Does the Exclusion Clause Cover the Loss or Damage That Has Occurred?
Once the exclusion clause has been proved to be a contractual term, it must now be determined
whether the clause covers the liability sought by the defendant. This is carried out by examining the
construction of the contract, primarily looking at whether it was the parties intention for the
exclusion clause to be applicable.16 A general approach is construing the exclusion clause according
to its natural and ordinary meaning read in the light of the contract as a whole. 17 Rons exclusion
clause Ron is not liable for any loss or damage caused by the paint, regardless of how much loss or
damage may be caused, when interpreted under this rule is clear and unambiguous that Ron has
excluded himself from any liability.

13 Khoury. D, Yamouni. Y (2010). Understanding Contract Law. 8th ed. Australia: LexisNexis
Butterworths. pg169-190.
14 McCutcheon v MacBrayn [1964] 1 WLR 165
15 Hollier v Rambler Motors [1972] 2 WLR 401
16 Carter. JW (2011). Carter's Guide to Australian Contract Law. 2nd ed. Australia: LexisNexis
Butterworths. pg176-186.
17 Darlington Futures Ltd v Delco Australia Pty Ltd [1986] 161 CLR 500

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It is assumed that negligence was the cause of the damage or loss in the Question. Under the
negligence rule, to cover negligence, the words in the exclusion clause should strictly refer to that
coverage.18 Unlike the case of Bright v Sampson and Duncan Enterprises Pty Ltd, 19 where it was held
that the words of the exclusion clause was not sufficient to cover liability, Rons clause specifically
states any loss or damage which eliminates any confusion as to what extent of damage or loss.
These words can be found similarly in Glenmont Investments Pty Ltd v OLoughlin where it was held
that an exclusion clause stating a party will not under any circumstances be liable or responsible
for any damage or loss,20 was sufficiently worded to cover the liability being sought.
However under the four corners rule, it may be argued that in the Question, the action that occurred
was an act beyond the words of the contract. The tampering of the paint was a breach of an implied
term, where the party must act in a duty of care. The paint, while under the care of Jeff was
damaged as a result of actions not authorised by the contract. 21 Jeff had in fact acted in a way that
was not intended by both parties. Drawing from the case of Thomas National Transport (Melbourne)
Pty Ltd & Pay v May & Baker (Aust) Pty Ltd 22, a party is not liable if he deals with them in a way that
is quite alien to his contract. 23 Jeff in the Question, had certainly acted outside his contractual
obligations and hence cannot rely on conditions which were only intended to protectif [he] carried
out the contractin the way in which contracted to do. 24

18 Khoury. D, Yamouni. Y (2010). Understanding Contract Law. 8th ed. Australia: LexisNexis
Butterworths. pg169-190
19 Bright v Sampson and Duncan Enterprises Pty Ltd [1985] I, NSWLR 346
20 Glenmont Investments Pty Ltd v O Loughlin (No 2) [2000] 79 SASR 185
21 Khoury. D, Yamouni. Y (2010). Understanding Contract Law. 8th ed. Australia: LexisNexis
Butterworths. pg169-190
22 Thomas National Transport (Melbourne) Pty Ltd & Pay v May & Baker (Aust) Pty Ltd [1966] 115
CLR 353
23 Thomas National Transport (Melbourne) Pty Ltd & Pay v May & Baker (Aust) Pty Ltd [1966] 115
CLR 353
24 Gibaud v Great Eastern Railway Co [1921] 2 KB 426

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However ambiguity lies in determining if Ron is liable for Jeffs (Rons employee) actions. Under the
contra-proferentum rule, the courts will tend to construe the clause against the party seeking to rely
upon it.25 The issue of determining if the employer is liable for the actions of its employees is similar
to that in the case of Photo Production Ltd v Securicor Transport Ltd. 26 Its exclusion clause read
under no circumstance shall the company be responsible for any injurious act or default by an
employee of the company.27 It was held that the words of the clause were so crystal, 28 that it
excluded liability. Although the issue is the same, the facts are different in the Question as Rons
exclusion clause merely states, Ron is not liable for any loss or damage caused by the paint... and
clearly mentions nothing about his employees. Hence this ambiguity creates a path for Winston to
argue that the exclusion clause is not valid under contra-proferentum.
This issue may be answered by the doctrine of privity of contract, as Jeff is not a direct party in the
contract between Winston and Ron. The case of Norwich City Council v Harvey 29 illustrates that the
third party (employee of the sub-contractor) had no privity of contract. 30 In the judgement of May LJ,
it was held that If in principle the subcontractor owed no specific duty to the building owner in
respect of damage by fire, then neither can any of its employees. 31 This can be applied to the case
in the Question. As it was proved earlier that the exclusion clause was valid through incorporation
into a contract excluding Ron from any liability, it can be concluded that Jeff being his employee also
holds no liability. Hence the exclusion clause covers both Ron and Jeff from any damage or loss.
Tentative Conclusion
25 Carter. JW (2011). Carter's Guide to Australian Contract Law. 2nd ed. Australia: LexisNexis
Butterworths. pg176-186.
26 Photo Production Ltd v Securicor Transport Ltd [1980] 2 WLR 283
27 Photo Production Ltd v Securicor Transport Ltd [1980] 2 WLR 283
28 Photo Production Ltd v Securicor Transport Ltd [1980] 2 WLR 283
29 Norwich City Council v Harvey [1989] 1 WLR 828
30 C. A. Hopkins (1990). Privity of Contract: The Thin End of the Wedge?. The Cambridge Law
Journal, 49, pp 21-23
31 Norwich City Council v Harvey. [1989] 1 WLR 828

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It is unlikely that Winston will be able to sue for compensation as he is bound by the exclusion
clause, through its successful incorporation into the contract through reasonable notice and previous
dealings. By examining the construction of the clause, Winston may argue that under contraproferentum and four corners rules, the exclusion clause does not cover the liability sought. However
the doctrine of privity of contract and the negligence rule is more likely to overturn this argument,
binding Winston to the exclusion clause.
b) In the case of Rons salesman misinterpreting the exclusion clause to only state that it excludes
liability in cases where the paint fumes affect people with an allergy to those fumes, rather than to
any damages or loss, Winston may not be bound by the clause. These facts are similar to the case of
Curtis v Chemical Cleaning and Dyeing Co. 32 Despite the fact that Chemical Cleaning and Dyeing Co
had a clear exemption clause that protected them from any damage however arising, the
misrepresentation of the assistant invalidated the effect of that clause. It was held that any type of
misrepresentation where a party acts to mislead the other party about the existence or extent of
the exemption...will disentitle the creator of it to the benefit of the exemption 33. Due to the
similarity of facts, where Rons exclusion clause also was clear in excluding liability for any damage or
loss, this case may be used as a precedent that holds the exclusion clause invalid due to
misrepresentation. Hence Winston will not be bound by the terms.
This can be further argued that although in part a) under the negligence rule, Ron was excluded from
liability, the situation in part b) is different as the exclusion clause interpreted by the salesman did
not in fact cover what actually occurred in the Question. It is important to note that even if in the
Question, Winston or another party did have an allergic reaction to the paint fumes, Ron would still
not be protected by the clause. This is due to the fact that an exclusion clause will only be effective
for negligence if clearly worded and not misleading or deceptive. 34

Word Count: 1946


32 Curtis v Chemical Cleaning and Dyeing Co [1952] 1 KB 805
33 Curtis v Chemical Cleaning and Dyeing Co [1952] 1 KB 805
34 Latimer. P (2012). Australian Business Law. 32nd Ed. Australia: CCH Australia Limited.

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Bibliography
Cases
Balmain New Ferry Co Ltd v Roberston [1906] HCA 83
Bright v Sampson and Duncan Enterprises Pty Ltd [1985] I, NSWLR 346
LEstrange v Graucob (F) Ltd [1934] 2 KB 394
Causer v Browne [1952] VLR I
Chapleton v Barry Urban District Council [1940] I KB 532
Curtis v Chemical Cleaning and Dyeing Co [1952] 1 KB 805
Darlington Futures Ltd v Delco Australia Pty Ltd [1986] 161 CLR 500
Davis v Pearce Parking Station Pty Ltd [1954] 91, CLR 642
Gibaud v Great Eastern Railway Co [1921] 2 KB 426
Glenmont Investments Pty Ltd v O Loughlin (No 2) [2000] 79 SASR 185
Hollier v Rambler Motors [1972] 2 WLR 401
J Surling Ltd v Bradshaw [1956] 1 WLR 461
McCutcheon v MacBrayn [1964] 1 WLR 165
Norwich City Council v Harvey [1989] 1 WLR 828
Olley v Marlborough Court Lts [1949] 1 KB 532

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Photo Production Ltd v Securicor Transport Ltd [1980] 2 WLR 283
Thompson v London, Midland & Scottish Raliway Co [1930] 1 KB 41
Thomas National Transport (Melbourne) Pty Ltd & Pay v May & Baker (Aust) Pty Ltd [1966] 115 CLR
353

Books
Carter. JW (2011). Carter's Guide to Australian Contract Law. 2nd ed. Australia
Gillies. P, Selvadurai. N (2009). Law of Contract. Australia: The Federation Press. pg92-102.
Khoury. D, Yamouni. Y (2010). Understanding Contract Law. 8th ed. Australia: LexisNexis
Butterworths. pg169-190.
Latimer. P (2012). Australian Business Law. 32nd Ed. Australia: CCH Australia Limited.

Journal Articles
Hopkins. C. A. (1990). Privity of Contract: The Thin End of the Wedge?. The Cambridge Law Journal,
49, pp 21-23
Kapnoullas. S, Clarke. B. (2006). Incorporation Of Unusual Or Unreasonable Terms Into
Contracts: The Red Hand Rule And Signed Documents. Deakin Law Review. 11 (2), pg 95-113.
Stewart. A. (1987). Oral promises, ad hoc implication and the sanctity of written agreements.
Australian Law Journal. 1, pg2-16.