TT Talk - Exclusion clauses - recapping the basics


  • Date: 17/03/2006
  • Source: TT Text 81

While on the subject of exclusion clauses. we are grateful to our friends at Australian lawyers Phillips Fox for this timely reminder about the importance of proper drafting of such clauses. The following comments are based on Australian law and practice and while the principles are generally applicable in other jurisdictions, members else where should seek legal advice locally on issues of incorporation and validity.

Any regular player in the transport industry, particularly one involved in road transport, will know the importance of a contractual term limiting or excluding liability for damage, but not all exclusion clauses are the same. Simply having a statement on a consignment note, for instance, that reads "WE ARE NOT LIABLE FOR ANY DAMAGE" is no guarantee of an effective avoidance of liability.

A properly worded exclusion clause which is incorporated into the contract of carriage between road carrier and client, will greatly diminish the prospects of a successful recovery action and bring the carrier a sigh of relief.

A legalistic explanation for an exclusion clause is that it operates to exclude, restrict or qualify a carrier's liability in the event of its breach, or circumstances which would, apart from the clause, amount to a breach of the contract for carriage. An exclusion clause is attempting to reverse the natural order of liability. In other words, if goods were destroyed the normal expectation would be that whoever was responsible for the damage would be responsible.Exclusion clauses attempt to exclude that responsibility and for that reason courts will often be reluctant to enforce them. Consequently, for a clause to be effective, it must specifically set out the type of negligence and actions for which the carrier is trying to avoid or excludeliability.

Many smaller road carriers place their reliance on ineffective exclusion clauses or fail to ensure that their exclusion clauses are actually incorporated into the contract for carriage. Some carriers still assert: "WE ARE NOT COMMON CARRIERS", often coupled with "We do not accept liability for any loss." That type of clause is almost certain to fail. While it is possible to argue that even a badly worded exclusion clause can be effective, the general test to see whether an exclusion clause would be enforced by a court is to see whether it specifically includes an intention to exclude liability for negligence (even negligence by the carrier's own staff), breach of bailment, breach of contract and any other cause of loss howsoever caused. The effect of such a clause is to remove any doubt on the construction question. If this specific wording is not used, a customer is legitimately able to question the scope and effectiveness of the clause.

The second critical issue is the incorporation of the exclusion clause, and the other terms and conditions, into the contract for carriage. In order to be able to rely on an exclusion clause, the carrier must have undertaken all reasonable steps to bring the existence of its terms and conditions to the customer’s attention. The use of phrases such as "All business is subject to our standard terms and conditions" on quotations, consignment notes, letterheads and invoices is a good test to see whether the carrier's clients were given notice of its terms. The terms and conditions should then be provided in full on first contact with any new client and printed on the reverse of any invoice, letterhead or consignment note. If this has not occurred, there is an argument that the terms did not form part of the contract.

The Club would add that, if your sub-contractor does come up with some seemingly simple and all-embracing exclusion of liability, it would be very worth while checking the extent of his own liability insurance before doing any business at all. Liability insurers know that the courts are unlikely to uphold such clauses, leaving the sub-contractor exposed to a full-value claim without any valid limitations of liability: they therefore take care to see that their insureds have effective clauses in their contracts.  The fact that a company is trying to incorporate worthless clauses may therefore mean that it simply hasn’t gone to the trouble of arranging insurance at all. In our book, that’s a pretty good reason to steer clear.

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