Exception Clause in Contract
An exception or exclusion clause is a contractual stipulation purporting to exclude the liabilities of one of the parties in the contract. In exception clause, one party to a contract seeks to keep his right but reduces his obligation.
Where a standard form of contract is involved, it is not unusual for the parties who draw it up to take advantage of the dominant position by including exception clauses. It is essentially a picture of standard contract.
The court do not like exception clauses. This is because they go against the whole basis of what contract should be, i.e. an assumption of rights and duties on both sides. However, if a document is to be regarded as an integral part of a contract, it must first be seen if it is signed or has not been signed.
Read also: Contract in law
If it is unsigned, the question will be whether reasonable notice of the term have been given. In the case of Parker v South Eastern Railway Co, the court decided that the plaintiff had notice of exception clause written at the back of the receipt such that the company could rely in it in their defence.
For an exception clause if it is unsigned, to be taken as binding, the notice must be given before the contract is formed, i.e. pre contractually. A belated notice may be useless.
In Olley v Marlbough (1949) P 532. The plaintiff, a woman had booked into the defendant hotel with him husband and paid in advance to stay for a week. They had never been to the hotel before. They went to their room upstairs. On the wall, there was the notice. “The proprietors will not hold themselves responsible for articles lost or stolen unless handed to the manageress for safe custody.”
The couple went out for a while leaving the key to their room at the reception section. Somebody took the key and stole several items of the plaintiff. The plaintiff sued and the hotel management attempted to rely on the exception clause as excepting them from liabilities.
It was held that the contract has been formed at the desk before they went to the room and since the notice came through, thus, it cannot be regarded as effective notice.
In Thomton v Shoe Lane Parking (1971) 2 Qb P163. The plaintiff parked his car in an automatic car park. On his way out, a ticket emerged from a machine where terms excluding the defendant from liability was written.
It was held that the notice was not brought to the notice of the plaintiff before the contract was formed.
Ojeniyi v Zand and Co (1972) 2 UILR pg 34 from the fact illustration in the above cases it is clear that before a notice can be held to create an exception clause, the notice must be effective and must be given pre contractually.
However, if the parties have dealt with each other before, the notice may be given by these previous course of dealings.
Notice by Signature
If somebody signs a document containing an exception clause without reading it, he is bound by it in the absence of misrepresentation, fraud and duress.
This is exemplified by the case of L’estrange v Graucob (1934)2 Kb p. 394. The plaintiff ran a café. She bought a cigarette machine where she signs a sales agreement which included a number of clauses in regrettably small prints but quite legible. She did not read the document neither was it read over to her.
The defendant did not draw her attention to the exemption clause. In fact, she had no real idea about what she signed. When the machine broke down, she complained to the defendant but they hide behind the exemption clause.
Read also: Variation of Contractual Rights
It was held by the court that when a document containing contracted term is signed in the absence of fraud and misrepresentation, the party signing it is bound and it is immaterial whether he has read the document or not.
When misrepresentation or fraud is alleged, it will constitute an exception to it.
Exception Clause and the Doctrine of Fundamental Obligation
Fundamental breach of contract have been defined as an event resulting from the failure by one party to perform a primary obligation which has the effect of depriving the other party of substantially the whole benefits expected from the contract.
It is the general belief that a party guilty of the fundamental breach of contract cannot rely on exception clause to avoid liability.
In Boshallis case (Adel Bashalli v Allied commercial exporters limited), where a contract for the supply of clothes was entered into between the plaintiff (buyer) and the defendant (supplier). The sample was found very much inferior in quality to the sample which form the basis of the agreement. The supplier relied on an exception clause to avoid liabilities.
The court held that the clause do not avoid the defendant any protection. It forth held that the clause can only avail the party if he is carrying out the contract in his essential respect.
In the Nigerian case of Shotayo and Arekegbe v Nigeria technical company (1970) 2ALR P 129. The plaintiff bought a second hand lorry from the defendant under a hire purchase agreement which contained a clause excluding all warranties and conditions as to fitness or road worthiness. The lorry turned out to be unfit, the plaintiff spending most of his time for repair works. The defendant relied in the exception clause.
It was held that the defendant had committed a fundamental breach and could not therefore rely on the exception clause.
However, before 1966, it has been thought that the doctrine of fundamental breach and its effect in relation to exception clause constituted a rule of law that nobody was allowed to rely on it.
This seemingly settled position of law was shaken in Suisse Atlantique’s case (1967) 1 AC p 36 when the matter was reexamined and the House of Lords held that there is no rule of law by which an exception clause could be eliminated or rendered ineffective as a result of a breach of contract whether fundamental or not, that since parties are free to include exception clause in the agreement, it is a matter of construction of the whole contract including the exception clause.
As a result, the court finally held that although the defendant were breach of the obligation, the exception clause was clear and unambiguous and protected the defendant from liability.
Although, Suisse Atlantique’s case is regarded as deciding that there is no law which established that a fundamental breach of term destroys exception clause. The ghost of the rule of law reappeared in Harbutts Plasticine’s case (1970)1 KB 447. The plaintiff own a factory and contracted with the defendant to design and install equipment in the factory for storing and dispensing a heavy wax.
The contract incorporated printed conditions including clause number 15 which provided that until take over, the defendant will not indemnify the plaintiff against direct damage to their property caused by their negligence but not excluding the contract price.
The defendant used unsuitable material for the purpose. In an attempt to test if the defendant switched on the heating plant and lift it unattended to overnight. The factory was totally destroyed.
The court held that there have been a fundamental breach of contract which denies the defendant from relying on the exception clause.
The uncertainty and contradiction between the decisions in Sussie Attlantique and Hebutt Plastiscine’s case was finally settled in the case of Photo productions Limited v Securico Transport (1980) All Er p 556.
The plaintiff owned a factory and entered into a contract with the defendant (A security company to provide security services to the factory). While carrying out a night patrol, an employee of the defendant company deliberately started a fire which got out of control and destroyed the whole factory.
The plaintiff sued and the defendant pleaded an exception clause which had the effect that the defendant shall not be responsible for any injurious act or default of the defendant employee unless the default would have been foreseen.
The House of Lords overruling Harbutt Plastiscine case held that there is no rule of law by which an exception clause can be rendered ineffective as a result of a breach of contract whether fundamental or not.
The court further held that parties are free to agree to whatever exclusion or exception clause they want on their obligation, and any breach is a matter of construction of the whole contract.
The rule of construction in accordance with the House of Lord decision in photo production case is the method being employed to interpret exception clauses in England.
However, the negative effect or result which may arise from this interpretation has been taken care of by the unfair contract Terms Act 1977 which is not applicable in Nigeria.
The initial attitude of the Nigerian court to the exception clause is that of employing the Rule of law approach, i.e. no exception clause will apply where a fundamental breach of contract was alleged. In line with the decisions in Karsals V Wallis, Shotayo Arekegbe’s case and Harbutt Plastiscine case. This apparently ignores the new development in England where the rule of construction is employed.
Unfortunately in 1989, the Nigerian Supreme court stated to employ the rule of construction. In Akinsanya v UBA in heavy reliance on the authority in the English case of photo productions Limited. This is an alter disregard to the socio cultural environment and state of development in Nigeria.
Read also: Consideration in contract
It is the view of text writers that the supreme court need not follow the decision of the English court slavishly but instead he should adopt the rule of law interpretation which is move in time with our level of development in Nigeria and more so when there is no general legislation to protect the consumers from oppressing exception clauses.
Contributed to: Adedokun Samuel
Inioluwa Olaposi is a Law student at Obafemi Awolowo Universities, Ile-Ife, Nigeria. Before LawHub NG, he started publishing law-related posts on his former multi-niche website.