Terms of a Contract italic; text-decoration: underline;">Olley v Malborough Court Ltd - Hotel sought to rely on an exclusion clause located in a hotel room. However, the argument failed as it was held that the contract had been formed before Olley had even sat foot in the room.

Thornton v Shoe Lane Parking - Parking lot with exclusion clause on tickets. Timing = after + No Reasonable Notice was given by the defendant.

    * There was a notice outside the lot which gave the rates and stated cars were parked ‘at their own risk’. The plaintiff drove his car into the lot, took his ticket and parked the car, but when he returned there was an accident that left the plaintiff severely injured
    * When the plaintiff sued, the defendant claimed that the ticket incorporated a term which excluded it from liability. On the back of the ticket it stated that the ticket was issued subject to the conditions displayed on a pillar opposite the machine – 8 conditions were displayed – although the pillar couldn’t be seen from the automatic ticket machine.
    * Court held that the defendant couldn’t rely on the exemption clause because the plaintiff did not know of the exemption clause; and the defendant had not done what was reasonably sufficient to bring it to the plaintiff’s notice before the contract was made.

2.      Reasonable Notice: In the absence of actual knowledge, the delivery of the document or the placing of the sign must be done in such a way that the other party can be taken to have given reasonable notice of the terms.

If however the document is non-contractual in nature (E.g. Tickets, receipts and vouchers), merely handing it over to the other party is not enough. Party relying on the clause must take reasonable steps to draw the recipient’s attention to it.


·         Courts will often look to past dealings between parties to assist in determining the terms of their present arrangements. There must be a previous consistent course of dealings of a sufficient length of time. - Ultimately a question of reasonableness

Henry Kendall & Sons v William Lillico & Sons - Terms in prior dealings were found reasonable in present deal 

·         There was an oral contract for the sale of Brazilian nuts, and on each delivery the seller sent ‘sold notes’, evidence or confirming the prior oral contracts, and the notes included an exclusion clause for latent defects.

·         The buyer knew the notes contained terms but never read them.

·         It was held that the exclusion clause formed part of a contract. This was because it was by the regular course of dealings over a long period of time, the buyer indicated an acceptance of and readiness to be bound by the printed conditions of which they were well aware, although they had not troubled to read them.


Terms that will be read into the contract and which were never the subject of express agreement.

1. Terms implied in law - either by common or statute law

(i) Trade Practices Act 1974 (C’th) -Statute that implies terms in sale of goods contracts

    * Implied condition that goods will be of merchantable quality: s71 (1);
    * Implied condition that goods are reasonably fit for the purpose for which they were supplied: s71 (2);
    * Implied condition that if goods are sold by example, the bulk will correspond with that sample: s72
    * It is important to note that parties cannot contract out of these terms implied under the TPA – s68

(ii) Under common law - In commercial contracts there is an implied term requiring the exercise of good faith in the performance of the contract

    * Duty of good faith suggests a demand that parties conduct themselves in accordance with standards of conduct which are honest, as well as being reasonable having regard to the parties’ interests: Overlook v Foxtel [2002]

    * Common law often implies quite specific terms into particular types of contracts such as employment contract where an employee will be bound by implied terms that he or she:

          o Is reasonably skilled to perform the job in question
          o Will faithfully server his or her employer
          o Will obey lawful commands made by the employer

2. Terms implied by custom or trade

A term may be implied into a contract to incorporate a relevant custom in a particular market, trade or locality.

Con-Stan Industries of Aust Pty Ltd v Norwich  Winterthur Insurance - HC set out a number of rules that must be satisfied before a term will be implied on the grounds of custom or trade usage:

1) Existence of a custom or usage that will justify the implication of a term into a contract is a question of fact

2) There must be evidence that custom or usage relied upon is so well-known and acquiesced in that everyone making a contract in that situation can reasonably be presumed to have imported the term into the contract; however, the custom need not be universally accepted.

3) A term will not be implied on the bases of custom or usage where it is contrary to the express terms of the agreement.

4) A person may be bound by a custom notwithstanding the fact the he or she had no knowledge of it.

3. Implication of terms on the facts of a case

Here a court is asked to imply a particular term on the basis of the specific facts and circumstances of the case before it.

In BP Refinery (Westernport) Pty Ltd v Shire of Hastings, the Privy Council listed the 5 requirements necessary for implying a term on the business efficacy:

      1 - It must be reasonable and equitable to imply the term;

      2 - It must be necessary to give business efficacy (i.e. term must be necessary to make contract effective and workable according to the presumed intention of the parties, State of NSW v Banabelle Electrical Pty Ltd)

      3 - It must be so obvious that it goes without saying (Codfelfa Constructions Pty Ltd v State Railway Authority of NSW - Term failed obvious test)

      4 - It must be capable of clear expression; and
     
      5 - It must not contradict any express terms of the contract.


The process of construction involves two things, namely, the meaning of the words used and the legal effects or significance of those terms: Life Insurance Co of Australia Ltd v Phillips


Exclusion clauses are terms of a contract that seek to exclude or limit the liability of a defendant from liability to a plaintiff in the event that the defendant causes loss to a plaintiff.

Important: If EC is part of contract always mention the Darlington Case

Darlington Futures Ltd v Delco Australia Pty Ltd - sets out the fundamental approach to the construction of an exclusion clause:

      i.          An Exclusion clause should be construed ‘according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving weight to the context in which the clause appears including the nature of the object of the contract

In determining whether an exclusion clause shields a defendant from liability to a plaintiff, the principal task of the court is determine the intention of the parties.

      ii.         The contra proferentum principle will be applied so that in cases of ambiguity the clause will be construed against the person relying on the exclusion clause

Here courts will utilize the meaning of the clause that is least preferable to the party most relying on it as described in Thomas National Transport Pty Ltd v May & Baker Pty Ltd

5 Rules of Construction Developed by the Courts

1 -   Contra Proferentum Rule: (Explained above - (ii))

2 -   Fundamental Breach Rule:

An EC can prevent liability for a fundamental breach of contract where the clause is clear and unambiguous and where the court in viewing the circumstances of the particular case determine that the intention of the parties was to agree to an EC covering the particular breach alleged.

Suisse Atlantic Societe v NV Rotterdam [1967] - Upjohn J stated that a fundamental breach ‘goes to the root’ of an agreement’. Therefore there couldn’t be an EC to cover a fundamental breach. (Overruled see below)

Photo Production Ltd v Securicor Transport - House of Lords rejected the doctrine of fundamental breach adopted in Suisse (above), which suggested that termination for fundamental breach necessarily prevents the enforcement of an exclusion clause.

Court held that the question of reliance on an exclusion clause and the fundamental breach is ‘one of construction that there is no principle of law that a fundamental breach will automatically invalidate an EC.’

Court was not entitled to reject EC ‘however unreasonable the court itself may think it is, if the words are clear and fairly susceptible of one meaning only.

    * Defendant contracted to supply plaintiff with security patrol for their factory. Security guard destroyed the plaintiff’s factory through a fire.
    * Defendant relied on EC in the contract that stated ‘under no circumstance shall (Securicor) be responsible for any injurious act or default by any employee of Securicor…’
    * Although Securicor was found to have breached an implied term requiring to provide the service with due and proper regard to the safety and security of Photo’s premises, their primary obligation is modified by the Exclusion Clause – where Securicor’s obligation isn’t absolute, its limited to exercising due diligence in its capacity as an EMPLOYER of the staff/security.
    * Because the clause was clear and unambiguous, the defendant could rely on it given the facts

3 -   Deviation Cases

If you deviate from the contract, you lose the effect of the EC

TNT v May and Baker - Carrier deviates from the agreed voyage or route, therefore loses the benefit of an EC.

    * A TNT subcontractor was to transport May and baker’s goods from Mel to Sydney. When subcontractor collected good, was unable to store them in TNT storage depot as they were closed for the night.
    * Subcontractor went and stored them in his home garage, fire went loose and destroyed goods.
    * TNT tried to rely on their exclusion clause to protect them, however HC ruled against them on the basis that the contract stipulated that the goods be stored in TNT depot.
    * Storage in subcontractors home was an unauthorized deviation which rendered the EC inapplicable.

4 -   The Four Corners Rule

If the defendant’s act that causes loss to the plaintiff is an act that hasn’t been authorized or contemplated by the contract then an EC cannot protect the defendant from liability of damages flowing from the act, as seen in Council of the City Sydney v West.

Such an act is said to be outside the scope, or four corners, of the contract.

5 -   Exclusion Clauses and Negligence

For negligence by a contract breaker to be within the scope of an EC it is clear that it must be clearly intended that the clause covers negligence: Davis v Pearce Parking Station

3 rules that apply to Exclusion Clauses and how they are construed in the event that the plaintiff’s loss is due to negligence of the defendant, have been summarized in Canada Steamship Lines Ltd v The King:

i) An express exemption of liability for negligence will effectively exclude liability on the part of the defendant;

If the EC explicitly excludes liability for negligence it ill be effective…words such as ‘howsoever caused’ and ‘under no circumstances’ will generally be said to incorporate negligence: Rutter v Palmer

ii) Where there is no express reference to negligence, the court needs to determine if the words used are wide enough to exclude negligence, with any doubts on this to be resolved by applying the contra proferentum principle.

If the only way in which the defendant could be liable for breach of contract is by acting negligently then a clause that makes no mention of negligence will usually be sufficient to exclude liability for the defendant Alderslade v Hendon Laundry Ltd

iii) If the words used are wide enough to cover negligence but also encompass other grounds of liability other than negligence, the clause will be read as applying only to the ground of liability and will not operate to exclude the claim for negligence.