In contracts, we will often find all sorts of exemption and exclusion clauses particularly for standard form contracts. However, the courts tend to frown on such instruments as they fundamentally remove certain legal rights that people enjoy. Therefore, there are a few important things that we need to remember about exemption clauses.
Again, I shall look at this through the lens of a start-up since I use similar language in many of my works.
Firstly, exemption clauses have to be notified to the person accepting it. This notification has to be sufficient. How this notification is done depends on several factors of course.
Brought to Attention
It was held in Sanggaralingam v Wong Kook Wah that it was not sufficient to merely display a notice to the customer up-front about the exemptions, but it was necessary to bring the attention of the customer to it. This can be done by using large bold blinking letters or simply mentioning it to the customer before they signed. The key point is that any exemption clause must be brought to the attention of the customer.
In terms of a web start-up, this means sticking the exemption clause clearly in a place where the customer can get to it. They must know that it exists and must be able to easily find it if they want to. So, sticking a big disclaimer page might be a useful first step of doing it.
Presumption of Knowledge
It was held in Parker v South Easter Railway that presuming that someone else has knowledge of the exemption is not right. Therefore, merely sticking up a large bold blinking sign board is not necessarily sufficient. It is also important to ensure that the customer knows of it.
In terms of a web start-up, this means that we cannot assume that the customer has access to the terms and conditions that we have stuck onto our website. We don’t need to care if they have actually read it, but we must ensure that they know of it’s existence, which leads us to our next point.
It was established in L’Estrange v F Graucob Ltd that having signed a document, the excuse of not reading it cannot be heard, as long as there was no fraud or misrepresentation during the process. This is typically used by websites where a user cannot possibly proceed until they click on the “I Accept” and the “Next” buttons.
So, for all start-ups providing any sort of service that needs to be exempted from liability, it is essential that they get their users to sign through terms and conditions. Whether the user actually read it or otherwise is not essential in the law as long as the actual terms were provided up-front.
It was established in multiple cases including Thornton v Shoe Lane Parking that providing the actual exemptions after the contract was already formed, is pointless. This means that any exemption clauses must be brought to the attention of the customer before they become our customer.
It was also held in Curtis v Chemical Dyeing Co that misrepresentation can nullify the exemption clause. Therefore, it is crucial that all copies of the terms and conditions say the same thing. If there is any confusion with multiple versions of the clauses, there will be a case of misrepresentation.
Next, is a question of construction – whether the exemption clause having already been incorporated into the contract, is valid. There are four general rules for this.
The first rule that will be applied to interpreting exemption clauses is the contra preferentum rule, which basically means against the preferred party. This means that any ambiguities in the exemption clause will be interpreted to be against the party making the exemption claim.
Now for the ringer – negligence. It was held in Canada Steamship Lins v The King that if negligence is to be exempted, the clause must contain express language to that effect. This means that in order to exempt liability from negligence, it was necessary to include words such as “exempted from damages and losses including those caused by negligence” or similar.
However, the law in Malaysia has changed recently. An amendment to S.24(a)-(d) of our Consumer Protection Act now includes wording that classifies a term as unfair if it includes words that exempt negligence.
However, the new law goes into much more detail on examples of various forms of unfair contract. Reading the illustrations are really enlightening. It’s not just negligence that is considered an unfair term now, even unilateral alterations to terms without prior notice, is unfair!