Exclusion

Clauses in
Contract

Business Law
LAW1014
 What are exclusion clauses?
• Exclusion clauses are a type of terms in found
in contracts where the party inserting them
into the contract is seeking to exclude liability
under the contract specifically, generally or
limit the damages claimable from him

• In this regard, exclusion clauses may be found

in any type of contract negotiated or not
Examples
 What are exclusion clauses?
• In negotiated contracts, the exclusion clauses
are discussed and agreed upon by parties.
• Most of the time the type of exclusion clauses
that exist are limitation of liabilities where
parties agree on the amount of damages
payable to the other in the event of breach.
 What are exclusion clauses?
• However there is another type of contract
where there is no negotiation.
• These are called the ‘standard form’ contracts.
The basis of standard form contracts is to enter
into the contract on a take or leave it basis
• This means either you contract accepting all
the terms in the contract or you don’t
• These terms are universal across the board
with many and any who enter into contract
using such contracts
What are exclusion clauses?
• In Business Contracts:
 bills of lading, charter parties,
building contracts etc

• In any Consumer Contracts:

 hire-purchase agreements,
insurance contracts, contracts
for the sale of goods and
services etc
 What are exclusion clauses?
• Usually the party delivering the standard form
contracts can insert terms unfairly exempting
him or her from certain liabilities at common
law
• Such clauses Receipts
may appear in Printed Tickets
Notices
Websites
 Types of Clauses
Taveechai Marine Case, per Ian Chin J:
1. Clauses that limit liability to a particular
breach
2. Clauses that exclude/restrict liability for
something that otherwise would be
considered a breach
3. Clauses that limit the amount of damages
claimable
 Issues with exclusion clauses in standard
form contracts
• Whether it was brought to the attention of the
customer AT THE TIME the contract was made
• However consumers usually have no
time/energy to read the clauses
• Or even if they were to read, they may not
understand the clauses or their meaning
 Issues with exclusion clauses in standard
form contracts
• It is only when a dispute arises that the
consumer realizes how much of his rights are
excluded
• In most instances if the exclusion clause if
deemed incorporated into the contract, when
a dispute arises, it will be too late to question
the existence of the clause
• An example may be seen from Malaysian
Airlines Bhd v Malini Nathan
Malaysian Airlines Bhd v Malini Nathan
• The respondent in this case, M, had booked
and confirmed a flight ticket from London to
Kuala Lumpur
• As the flights were fully booked, the appellant
was unable to accommodate the respondents
for the flight
• The respondents sued the appellants for
damages arising from breach of contract
Malaysian Airlines Bhd v Malini Nathan
• Having lost at the High Court, the appellants appealed and
sought to rely on condition 9 of the conditions of contract
printed on the airline ticket to exclude liability
• Condition 9 provides that the carrier undertakes to use its best
efforts to carry the passengers and baggage and that the
carrier may substitute an alternate carrier or aircraft. It also
provided that schedules are not part of the contract and are
subject to change
• The Supreme Court held that the appellant was entitled to rely
on the said condition 9
• The appellant were therefore not in breach of the contract
with the respondent
 How exclusion clauses are controlled by
Malaysian Courts?
• The Contracts Act 1950 does not specifically
deal with exclusion clauses
• Therefore the courts have to rely on English
Cases to adopt principles of control
• Reliance is made under sections 3 and 5 of the
Civil Law Act 1956
• In the alternative, the court may rely on cases
from UK or other jurisdictions on the basis of
persuasive decisions
 In English Common Law …
• The approach was to either
argue
1. that notice of the
exclusion clause was not
reasonably sufficient; or
2. interpret the exclusion
clause against the person
seeking to rely on it
Notice must be contemporaneous with the
contract
• When considering whether there is notice, we
must look to see if the contract has been
signed
• Where a contract has been signed, then the
person signing is said to have accepted,
agreed, and understood all terms
• Therefore in this regard, the person is said to
have notice of the terms – See the case of
L’Estrange v Groucob
Notice must be contemporaneous with the
contract
• However in the case of standard form
contracts where no signature has taken place,
the courts DO require that for these terms to
be binding, it must be adequately brought to
the attention of the buyer
• See the case of
– Olley v Marlborough Court Ltd
– Dr Wong Wai Ping v Woon Lim Sin
 Olley v Marlborough Court Ltd
• The P and her husband booked into a hotel
room and paid for a weeks stay at the hotel in
advance
• When they arrived at the hotel they registered
at the counter and were taken to their room
• Upon entering their room, they saw a notice
that excluded the liability of the hotel for any
loss or stolen goods from the room
 Olley v Marlborough Court Ltd
• Due to the negligence of the hotel staff, some of the P’s
and husband’s belongings were stolen
• They sued the hotel and the hotel sought to rely on the
exclusion clause in the room
• The UK Court of Appeal held that the hotel could not rely
on the exclusion clause
• The reason for this is that the notice only appeared as they
entered into the room and not earlier when they made
payment
• As such the exclusion clause was considered not part of
the contract
 Dr Wong Wai Ping v Woon Lim Sin

• A similar approach to Olley v Marlborough Court Ltd

was taken in this Malaysian case
• In this case a doctor, through negligence, had caused
the death of a woman while delivering her baby
• The family sought to claim in negligence against the
doctor and Pantai Medical Center (PMC).
• The hospital and the doctor sought to rely on a clause
that was made between the doctor and PMC which
stated that the doctor would not be liable in
negligence
 Dr Wong Wai Ping & Others v Woon Lim Sin

• This document was produced to the Court as

evidence of its existence
• The Court held that both the defendants could not
rely on the clause since the clause did not form
part of the contract between them and the P
• Reason: Although it was an agreement between
the doctor and the hospital, the notice of the
clause was not brought to the attention of the P in
this case.
 Notice must be reasonably sufficient
• The second question to ask is whether the party
seeking to rely on the exclusion clause had done
what was reasonably sufficient in the circumstances
to bring the clause to the attention of the other party
• Key point to note:
– Done what was reasonably sufficient
– In the circumstances
– To bring clause to the attention of the other party
• Test was taken from the English case, Parker v South
Eastern Rly Co
 Parker v South Eastern Rly Co
• In this case, the P deposited a bag in the D’s cloak
room at the railway station
• The P received a ticket that said on its face “See Back”
• On the back of the ticket were a number of printed
conditions, including one that limited the liability of
the defendants to £ 10
• The same clause was also a sign behind the cloak room
counter which was clearly visible
• The bag was lost and the P sued the Ds for the amount
of £ 24 and 10s
 Parker v South Eastern Rly Co
• The Ds sought to rely on the exclusion clause
• The UK Court of Appeal held that the
defendant had done everything that was
reasonable in bringing the clause to the
attention of the P
• This was not due to the ticket but the sign that
was found to be clearly visible behind the
cloak room counter.
 Thompson v LM & S Railway Co
• Here the plaintiff requested for her niece to buy her
a railway excursion ticket
• On the face of the ticket was written the words “for
conditions see back”
• On the back of the ticket, the customer was
referred to the company’s timetable and excursion
bills
• There also a clause excluding liability for company’s
negligence causing personal injury, fatal or
otherwise
 Thompson v LM & S Railway Co
• The P stepped out of the train before it
reached the platform and was injured
• The P sued the Ds and the Ds sought to rely on
the exclusion clause
• The court held that there was reasonably
sufficient notice in this case because it was
obvious that ticket for excursions usually
contained some exclusions from the normal
fare usually paid
 Notice must be reasonably sufficient
• Take note that whether notice given is
reasonably sufficient is a question of fact
• This means whether reasonable notice has been
given depends on the evidence available to the
courts
• In this sense the basis of the decision may differ
from case to case
• See cases:
Sebor (Sarawak) Trading Sdn Bhd v Syarikat
Cheap Hin Toy Manufacturer Sdn Bhd
 Sebor (Sarawak) Trading Sdn Bhd v Syarikat
Cheap Hin Toy Manufacturer Sdn Bhd
• The case concerned a contract where the
respondent sent three containers of fireworks
to Sibu on the appellant’s ship
• At the point of arrival, the goods were
unloaded and placed in the custody of the
Rejang Port Authority (RPA)
• At a later time, it was found that the goods
were fraudulently removed from the RPA
 Sebor (Sarawak) Trading Sdn Bhd v Syarikat
Cheap Hin Toy Manufacturer Sdn Bhd
• The respondent then, having found out, sued the
appellants for damages
• The respondent succeeded in their action at the
High Court
• However the appellant appealed to the court of
appeal
• The appellants drew the court’s attention to an
exclusion clause found in the copy of the bill of
lading which was signed by the director of the
respondent
 Sebor (Sarawak) Trading Sdn Bhd v Syarikat
Cheap Hin Toy Manufacturer Sdn Bhd
• At the Court of Appeal, it was held that there was no
evidence to show that the exclusion clause was brought to
the attention of the respondent
• However there was evidence that the director of the
respondents signed the bill of lading containing the
exclusion clause
• This meant that the director as an agent of the
respondents had read, understood and accepted all terms
within the bill of lading
• This meant that the respondents had reasonable notice of
the exclusion clause – the decision is in line with the case
of L’Estrange v Groucob
 Non-Contractual documents – reasonable
notice?
• The question here is whether notice is
reasonable where no expects the document
given to contain exclusion clauses
• The general view is that there would be no
reasonable notice in such circumstances
• The logic of this rule is the document is usually
only received by a person after the transaction
has been concluded
 Non-Contractual documents – reasonable
notice?
• Important rule - Notice MUST BE SHOWN TO
EXIST AT THE TIME of the contract
• Refer to
 Parker v South Eastern Railway Co
 However compare Parker’s case with Thompson v LM
& S Rly Co.
 Chappelton v Barry UDC (compare the abovementioned
cases to this one. What’s the difference?)
 Borhanuddin bin Haji Jantara v American International
Assurance Co Ltd
 Non-Contractual documents – reasonable
notice?
• In Parker v South Eastern Railway Co, the
Court of Appeal stated that in such situations
the document would be given for the purpose
of acknowledging payment
• Hence in this regard, the purpose of the
document given and the time at which it is
given is important to decide whether the
reasonable notice is given with respect to the
exclusion clause
 Non-Contractual documents – reasonable
notice?
• In the case of Thompson v LM & S Rly Co reasonable notice was
found to exist due to certain factors the courts took into account
 Firstly, in the opinion of the court, the wording in the ticket
was clear enough to indicate there were conditions for an
excursion ticket
 Secondly excursion tickets were charged at a lower price
compared to what was ordinarily charged. So this implied
that the terms could not have been the same
• Therefore it may be concluded – the decision was based on the
background of the case being special, in that the transaction
entered into in this case was different from the transaction
usually entered into with the train company on a daily basis
 Chappelton v Barry UDC
• Here the P hired a deck chair from the D to be
used by him to sit at the beach
• He took one from those available at the site
and paid 2d to the attendant on duty
• As he proceeded to a comfortable area to
make use of the chair, he went through the
canvass when he sat on the chair
• P sued the D for the injuries sustained
 Chappelton v Barry UDC
• The D sought to rely on the exclusion clause
printed on the ticket given to P
• The Court of Appeal held that the ticket was
merely an acknowledgement of payment made
• As such, it did not form part of the contract
between the P and D
• Therefore the exclusion clause did not protect
the D for liability
 Borhanuddin bin Haji Jantara v American
International Assurance Co Ltd
• In this case, George J clarified that not all clauses in
notices have no effect
• Each case depends on its own individual facts,
circumstances and evidence
• However take note that in general, the ticket is given
where performance is in the future the clause may apply
(something which may be observed from the Thompson
case and Parker case)
• However if the transaction is complete at the time of
payment, then most likely the clause would not be part
of the contract (observation from Chappelton case)
 Construction of Exclusion clauses
• General rule – the court will always construe an
exclusion clause on its plain and ordinary
meaning within context
• However with respect to exclusion clauses, the
courts have developed certain rules to limit its
effect if the clause is seen to be
ambiguous/unclear/vague
• In such a case, the clause is interpreted in
favour of the person who receives the
document containing the clause
 Construction of Exclusion clauses
• This also means that the clause may be
interpreted against the person who inserted
the clause in the document
• The reason for this is because the party
putting forward the document may include in
the document onerous terms that unfairly
exclude liability
• See The Taveechai Marine case
 Construction of Exclusion clauses: Strict
Interpretation
• Court will apply a strict interpretation to such clauses
• Hence the words of the clause must be clear and precise
to cover the liability it seeks to exclude
• In this regard the court will give the exclusion clause its
ordinary and plain meaning
• See
 Malayan Thread Co Ltd Sdn Bhd v Oyama Shipping Line
Ltd
 Jackson Malaya Bhd v Penang Port Commission
 Port Swettenham Authority v TW Wu and Co (M) Sdn Bhd
 Malayan Thread Co Ltd Sdn Bhd v Oyama
Shipping Line Ltd
• Raja Azlan Shah stated that the correct approach
was whether on the proper construction of the
exclusion clause, the clause covers the act that
causes liability
• In this regard, if on the plain and ordinary
construction of the clause, it does not cover the
act that causes liability then the clause loses its
effect
• Therefore general clauses have no effect, under
this rule
 Jackson Malaya Bhd v Penang Port
Commission
• In this case, the court held that the attempt made by
the D to restrict liability by enacting By-Law 79 of the
Penang Port Authority By-Laws 1957 was not within
the scope of the power given under section 69 of the
Penang Port Ordinance within the plain and ordinary
interpretation of section 69
• Therefore By-Law 79 was ultra vires (beyond what was
allowed by section 69) and therefore invalid
• Also see the case of Port Swettenham Authority v TW
Wu and Co (M) Sdn Bhd
Construction of Exclusion clauses: In the case of
ambiguity -The Contra Proferentum Rule
• The rule means the court will construe an
exclusion clause in a document forcibly against
the person putting forward the document
• However the rule only applies where there is
an ambiguity in the clause – this means that
there may two possible meanings to the
clause
Construction of Exclusion clauses: In the case of
ambiguity -The Contra Proferentum Rule
• See
 Malaysian National Insurance Sdn Bhd v
Abdul Aziz bin Mohamed Daud
 Sharikat Lee Heng Sdn Bhd v Port
Swettenham Authority
Borhanuddin bin Haji Jantara v American
International Assurance Co Ltd
White v John Warrick & Co Ltd
 Malaysian National Insurance Sdn Bhd v
Abdul Aziz bin Mohamed Daud
• In this case the D and the father were authorized
drivers of a vehicle
• The vehicle was involved in an accident and the D
sought to claim on the policy the car was insured
• However the policy contained an exclusion clause
that provided only authorized drivers who are not
disqualified under the law from driving can claim on
the policy
• At the time of the accident the D’s license had expired
and therefore this was an issue in the case
 Malaysian National Insurance Sdn Bhd v
Abdul Aziz bin Mohamed Daud
• The trial judge held that whether the D was
disqualified had to be decided in court
• And since at the time of the accident, the
defendant was not judged to be disqualified, he
was deemed to be an authorized driver at that
time
• D was held to be able to claim on the policy
• The decision of the trial judge was upheld by
Federal Court
 Malaysian National Insurance Sdn Bhd v
Abdul Aziz bin Mohamed Daud
• At the Federal Court, it was stated that how a
driver was disqualified under the law was
ambiguous
• Therefore the clause had to be interpreted
against the party who put the clause in the
document that was put forward to the D
• In this case it was the insurance company
 Recommended Reading

Chapter 9, "Exemption Clauses", Law for

Business (2022), Sweet & Maxwell