Negligence of Governing Factors †Free Samples to Students

Question: Discuss about the Negligence of Governing Factors. Answer: Introduction There are five elements which results in the formation of a contract. The same are offer, acceptance, consideration, capacity of the parties and the consideration to support the contract and to make it enforceable[1]. When a valid contract is made amid the parties, then, the parties are obligated to fulfill the terms of the contract. If any of the parties to the contract does not comply with the contract terms, then, such action is regarded as the breach of the contract. Once a breach is incurred then the defaulting party must face the consequences that are established by the parties in the contract.[2] But, there are situations wherein the parties desire to limit or restrict their obligations which might occur because of the breach of their respective obligations. This can be done by availing the benefits of exemption/exclusion clauses. But, there are rules which are framed for the incorporation of an exclusion clause and to make it valid. Thus, it is important to first understand the very basic meaning of an exclusion clause. When the parties try to limit, exclude or transfer the liability of the party which is established under the contract, then, the same can be done by availing the benefits of exclusion clauses. Initially, the concept of exclusion clauses were not treated in a very friendly manner, rather, the approach of the courts was very hostile in nature and special rules were made regarding its validity. But, with the coming of the leading case of Darlington Futures Ltd v Delco Australia Pty Ltd[3], the exclusion clause is now considered and treated in an ordinary context considering the contract as a whole.[4] Basically, when the parties try to exclude or limit the liability of one of the party to the contract with the approval of another party on the happening of some pre-decided or contingent event, then, such clause is called an exclusion clause[5]. Normally, the exclusion clause is interpreted against the party who is trying to avail its benefit and thus imposing the burden of proff on the relying party to establish its validity. While analyzing the validity of the clause the courts do consider few factors, such as, bargaining power of the parties, the element of unconscionability, etc,. For instance if an exclusion clause is found to be unjust then as per the Contracts Review Act 1980 (NSW), the court has the power to deny the enforcement of the clause which is made part of the contract.[6] However, it is now important to understand the factors which will make any exclusion clause valid in a contract. Incorporation of an exclusion clause in a contract is not the only tasks that make it valid; however, there are various factors that must be considered. Thus, the validity of an exemption clause in a contact is analyzed herein under. Validly of an exemption clause in contracts Many a times, the contracting parties incorporated an exclusion clause as part of the contract in order to limit or exclude the liabilities of the parties that may arise because of the contractual breach or negligence of the parties. However, such clauses are valid provide they are validly incorporated and interpreted. The same is discussed herein under[7]: The clause must be incorporated validly When the contracts are signed When any exclusion clause is made part of the contract then, the same is presumed to be made part of the contract provided it is incorporated by the parties through signature. It is a settled law and is held in L'Estrange v Graucob[8], that when booth the parties establishes a contract in written form and put their signatures on the same, then, they are bound by the terms of the contract irrespective of the facts whether the terms are read by the parties or not. If an exclusion clause is made part of the contract and is not read by the parties, still, it is binding upon the parties because the document is signed by them. But, if any misrepresentation is made by one of the party while incorporating the clause, then, the clause can be rendered to be ineffective and is held in Curtis v Chemical Cleaning Co[9]. When the contract is not signed When any exclusion clause is made part of the document which is not signed by the parties, then, the clause attain validity provided the party who is relying on the clause must have given reasonable notice to the said effect to the affecting party. The basic essentials are: That the clause must not be made part of any receipt, but, must be incorporated in a document which has the contractual effect, that is, wherein a reasonable person can predict that the document might contain such terms which may be bound upon the parties and is held in Parker v SE Railway Co[10] and Chappleton v Barry UDC[11]. That the relying party must brought the clause in the knowledge of the affecting party before the formation of the contract or at the time of the formation of contract. If the term is incorporated after the contract formation, then, such clause has no validity and is held in Olley v Marlborough Court[12]. When one party is incorporating an exclusion clause in an unsigned contract, then, it is the duty of the relying party that he must make reasonable efforts to bring the clause within the notice of the other party and is held in Thompson v LMS Railway[13]. There is no requirement of any actual notice; the only requirement is give reasonable notice. Many a times, contracts are made amid the parties not in the form of any signed or unsigned documents, but, because of course of dealings, that is, when the parties are in business relations and is complying with the terms with a passage of time and is held in McCutcheon v MacBrayne[14]. There should be present of significant number of past transactions in order to make any action to fall within the preview of course of dealings and is held in Hollier v Rambler Motors[15]. The exclusion clause can also be considered to be binding upon the parties through trade or custom and is held in British Crane Hire v Ipswich Plant Hire[16]. The next element that is required to make any exclusion clause to be validly incorporated in the contract is that the clause must cover the breach. Now, when the courts are settled on the point that the exclusion is made part of the contract, then, the liability of any party can be excluded or can be limited provided that the exclusion clause must have covered the breach that is incurred amid the parties. If the contractual breach occurred but is not covered by the clause then no liability can be excluded. The breach is considered to be covered by the clause is when: The clause is not clear and does not able to define the breach, then, the clause is interpreted against the party who will benefit from the same and is held in Houghton v Trafalgar Insurance Co[17]. If any liability which may arise because of negligence is to be excluded, then it was held in White v John Warwick[18], that the wording of the clause must be very clear; If the exclusion clause is not in compliance with the main contract, then, the clause is considered to be invalid and does not cover the breach and is held in Evans Ltd v Andrea Merzario Ltd[19]. Thus, these are the fundamental factors then can only make any exclusion clause to be validly incorporated in the contract. If the above rules are not comply with then the exclusion clause as part of the contract is considered to be invalid in law. Now, it is important to understand the general factors which must be kept in mind which results in the validity of an exclusion clause. Factors that govern the validity of exclusion clause After understanding all the relevant rules which must be followed to make any exclusion clause valid and in compliance with the contract in which it is incorporated, there are few factors which govern the general validity of an exclusion clause. The same is submitted herein under:[20] Every exclusion clause which is made part of the contract, whether the contract is written or not, signed or unsigned, there is one basic rule which submits that such a clause must be made part of the clause after giving reasonable notice to the affecting party. The reasonable notice must be provided before the formation of the contract. If any notice is provided by the relying party to the affecting party after the formation of the contract, then it has no relevance ad is rightly held in Thornton v Shoe Lane Parking Ltd[21]. The second most important factor that results in making any exclusion clause valid is that such a clause must not be contrary to any law. If the clause is against the provisions of any statue then the clause is in itself is invalid. Also, every exclusion clause if intends to provide any safeguard against any act of negligence then the same is considered to be valid only when the clause clearly specifies the acts of negligence and that the parties intent to exclude the liability which arise because of negligence; Thus, these are some of the governing factors that must be kept in mind before the formation and incorporation of an exclusion clause in the contract. Now, it is important to analyze the effectiveness of the exclusion clause in the Australian Consumer law. Effectiveness of Exclusion clause in Australian Consumer Law The Australian Consumer Law is a law that is established in Australia in order to carry on fair trading and to provide protection to the consumers. On 1st January 2011, the Australian Consumer Law was commenced. The Australian Consumer Law is mainly enforced and administered by the Australian Competition and Consumer Commission (Schedule 2)).[22] There are various provisions that are incorporated in the Australian Consumer Law which deals with the validity of the exclusion clauses. The same are submitted herein below[23]: As per section 64A of the Australian Consumer Law, any implied warranties and conditions, and the remedies and the rights which are established under the Australian Consumer Law cannot be excluded at any cost. If any exclusion clause is incorporated which is violation of section 64A will be considered as void. If the term is incorporated by any company then such company can be held liable for prosecution; Every service which is provided to any consumer must be catering with all due care and skill. If any exclusion clause is incorporated which hampers in serving this service is prohibited under section 60 of Australian Consumer Law. Any such clause is considered to be invalid and void; When any goods are supplied to the consumers and such goods are not in compliance with the implied conditions that are mentioned under the Australian Consumer Law, then, the consumer has the right to return the goods and seek refund from the supplier under section 261 of the Australian Consumer Law. Conclusion It is thus concluded that exclusion clause is a very important clause that is normally relied upon by the parties in order to exclude or limit their liabilities. But, any exclusion clause is considered to be valid only when the same is incorporated in the contract with notice, is not illegal and must cover the acts which it intends to exclude. Reference List Coorey, A,Australian Consumer Law 2015, LexisNexis Butterworths. Gillies, P, Business Law 2004, Federation Press. Gibson, A Fraser, D Business Law 2014 2013, Pearson Higher Education AU. McKendrick, E Liu, Q, Contract Law: Australian Edition 2015, Palgrave Macmillan. Latimer, P. Australian Business Law 2012 2012, CCH Australia Limited. British Crane Hire v Ipswich Plant Hire [1974] QB 303. Curtis v Chemical Cleaning Co [1951] 1 KB 805. Chappleton v Barry UDC [1940]. Darlington Futures Ltd v Delco Australia Pty Ltd(1986) 161 CLR 500. Evans Ltd v Andrea Merzario Ltd [1976] 1 WLR 1078. Hollier v Rambler Motors [1972] 2 AB 71. Houghton v Trafalgar Insurance Co (1954). L'Estrange v Graucob [1934] 2 KB 394. McCutcheon v MacBrayne [1964] 1 WLR 125. Olley v Marlborough Court [1949] 1 KB 532. Parker v SE Railway Co (1877) 2 CPD 416. Thompson v LMS Railway [1930] 1 KB 41. Thornton v Shoe Lane Parking Ltd (1971). White v John Warwick [1953] 1 WLR 1285. Dangeloloegal, Validity of exclusion clause in contract law 2017 https://www.dangelolegal.com.au/news/validity-exclusion-clauses-contract-law/. (accessed on 3rd MAy 2017). The law Teacher, Exclusion and limiting clause 2017 https://www.lawteacher.net/lecture-notes/contract-law/exclusion-clauses-lecture.php (accessed on 3rd May 2017). The law hand book, Australian consumer law 2017 https://www.lawhandbook.sa.gov.au/ch10s02s06s01.php (accessed on 3rd May 2017)