Law Exclusion Clause in a Contract

Running head: COMMERCIAL AND CORPORATIONS LAW
Commercial and Corporations Law
Name of the Student
Name of the University
Author Note

1COMMERCIAL AND CORPORATIONS LAW
Issue 1
Whether the exclusion clause is part of the contract, and whether it covers breach.
Law
Exclusion clause that has been stipulated in a contract implies a condition in a contract
having the effect of excluding or limiting a liability of one of the parties to the contract. Such
a clause would have the effect of limiting the liability of one of the parties to the contract in
case of any negligent act or any contravention of the terms of the contract. This can be
illustrated with the case of Photo Production Ltd v Securicor Transport Ltd [1980] AC 827.
However, for the purpose of enforcing such a clause it needs to be made sure that the
clause has been brought to the notice of the parties to the contract. Such a notice can be can
be inferred through express notice, signature to such a term as well as the course of dealings.
This can be illustrated with the case of Chapelton v Barry Urban District Council [1940] 1
KB 532.
However, it has been held in the case of Zurich Insurance (Singapore) Pte Ltd v B-Gold
Interior Design &. Construction Pte Ltd [2008] SGCA 27 that if the main object of the
contract has been defeated by the exclusion clause, then even the valid incorporation of such
a clause would not render it to be valid.
Application
In the present situation, a standard service agreement has been entered upon by
Transglobal Alarm Monitoring Pty Ltd and Fine Diamond Jewellery to provide security and
alarm monitoring services for 3 years to the latter. For the first year, the alarm and monitoring

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system was working fine and there was no incident of any security nature. However, after one
year, it has been found that the system has not been working properly and owing to such a
faulty security system there has a robbery that has taken place causing loss to the Jewellery
shop. On claiming damages an exclusion clause has been pointed out by Transglobal Alarm
Monitoring Pty Ltd that limits any liability for the company and its employees for any defects
in the security system. Applying the principles that has been established in the case of
Chapelton v Barry Urban District Council [1940] 1 KB 532, it can be conceived that the
exclusion clause is enforceable and Transglobal Alarm Monitoring Pty Ltd has no liability.
However, this contention can be contradicted with the principles established in the case of
Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design &. Construction Pte Ltd
[2008] SGCA 27. This is because the main objective of the contract was to install a security
system to keep the Jewellery shop safe but the defective system would defat this objective.
Therefore, the exclusion clause is not part of the contract, and it does not cover the breach.
Conclusion
Hence, it can be concluded that the exclusion clause is not part of the contract, and it does
not cover the breach.
Issue 2
Whether Fine Diamond Jewellery has any chances of success in receiving compensation
for the losses resulting from the failure of the alarming and monitoring system provided by
Transgloabl Alarm Monitoring Pty Ltd.

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Law
Any individual who has been a party to a contract needs to perform his obligation and any
failure to abide by the same would make the individual failing to perform the contractual
obligations liable for paying damages to the aggrieved. This can be illustrated with the case
of Robinson v Harman (1848) 1 Exch 850. Damages depicts the quantum of reimbursement
that is payable by the party in breach to the aggrieved for the contravention and the same can
be awarded by the court. Damages can be of two kinds namely the direct losses as well
consequential losses. This can be illustrated with the case of Clark v Macourt [2013] HCA
93.
Any breach that one of the parties has committed would only entitle the aggrieved to be
compensated by the party in contravention only if the damages that has been caused by the
alleged breach has been foreseeable and the same has been contemplated by both the parties.
Moreover, the injury that has been caused to the aggrieved as a result of the alleged breach
needs to have a proximate relationship with the breach. This can be illustrated with the case
of Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8.
For the purpose establishing the relationship between the alleged breach of the contractual
obligation and the injury caused to the aggrieved to be proximate, the foreseeability test
needs to be applied. Firstly, it needs to be ensured that the party alleged to have breached the
contractual obligation needs to have incurred liability to compensate the aggrieved by virtue
of the usual course of dealing. Secondly, the damages need to be capable of being
contemplated by both the parties in a reasonable manner. Lastly, the party, who has been
alleged to have breached his contractual obligations, needs to have a prior awareness of the
consequences that the breach is capable of incurring. This principle has been introduced with
the case of Hadley v Baxendale [1854] EWHC J70. This case can be referred for explaining

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the expression consequential loss. It has been held in this case that the damages claimed by
the aggrieved would only be eligible for being recovered from the person in contravention, if
the alleged has been in a position to foresee such a consequence following the breach. The
principle that need to be applied for assessing the consequential damages that can result from
the breach of a contract has been provided under this case. Under the law of contract, any
party who has contravened the contractual obligations, which were foreseeable would be
liable for making payment of compensation to the person aggrieved by the same. In case the
individual alleged to have breached the contractual obligations does not have the scope of
foreseeing the possible consequences, he would not incur any liability to pay compensation to
the aggrieved.
For the purpose of assessing the liability that the person breaching the contract needs to be
been imposed with depends upon the circumstances of the case and the same cannot be
applied with rigid principle. This can be illustrated with the case of McDonald v Parnell
Laboratories (Aust) Pty Ltd (2007) 168 IR 375.
Application
In the present situation, a standard service agreement has been entered upon by
Transglobal Alarm Monitoring Pty Ltd and Fine Diamond Jewellery to provide security and
alarm monitoring services for 3 years to the latter. For the first year, the alarm and monitoring
system was working fine and there was no incident of any security nature. However, after one
year, it has been found that the system has not been working properly and owing to such a
faulty security system there has a robbery that has taken place causing loss to the Jewellery
shop. On claiming damages an exclusion clause has been pointed out by Transglobal Alarm
Monitoring Pty Ltd that limits any liability for the company and its employees for any defects
in the security system.

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The chief objective behind the agreement for installing the security system was to protect
the jewellery shop and all the assets present in the same. The faulty security system has
breached the main objective of the agreement, which was to protect the jewellery shop. Being
a breach of the contractual obligations, this would entitle Fine Diamond Jewellery to claim
damages for the injury that has been caused to them owing to the failure off the security
system. This can be supported with the case of Robinson v Harman (1848) 1 Exch 850.
Again, the occurrence of the robbery that resulted in the loss caused to the jewellery shop
was not likely to be foreseen. Moreover, the court needs to consider certain factors for the
purpose of avoiding damages. The party in breach did not have the opportunity to foresee the
robbery. There was no proximate relationship between the robbery taking place to the breach
of the contract. Moreover, the security system was only liable for alarming any such
situation. Hence, the liability will also extend to that only and damages will not be paid any
further.
Conclusion
Hence, it can be concluded that the Fine Diamond Jewellery can claim damages only with
respect to the breach of the contract that is the faulty security system and not for the robbery.
Issue 3
Whether the exclusion clause is part of the contract, and whether it covers breach.
Law
Exclusion clause that has been stipulated in a contract implies a condition in a contract
having the effect of excluding or limiting a liability of one of the parties to the contract. Such
a clause would have the effect of limiting the liability of one of the parties to the contract in

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case of any negligent act or any contravention of the terms of the contract. This can be
illustrated with the case of Photo Production Ltd v Securicor Transport Ltd [1980] AC 827.
Again, the exclusion clause needs to be incorporated at the time of instituting the contract
to render the same as enforceable. There are three ways in which an exclusion clause can be
incorporated. Firstly, it can be incorporate by obtaining a signature in an agreement
containing the clause as has been established in the case of L’Estrange v E. Graucob Ltd
[1934] 2 KB 394. Secondly, the person who has been including the clause, needs to brought it
to the notice of the other party prior to the creation of the contract as has been established in
the case of Chapelton v Barry Urban District Council [1940] 1 KB 532. Lastly, such a
clause can also be incorporated by any prior experience of transaction with the same party as
can be illustrated with the case of Spurling v Bradshaw [1956] 1 WLR 461.
Application
In the present situation, a standard service agreement has been entered upon by
Transglobal Alarm Monitoring Pty Ltd and Fine Diamond Jewellery to provide security and
alarm monitoring services for 3 years to the latter. For the first year, the alarm and monitoring
system was working fine and there was no incident of any security nature. However, after one
year, it has been found that the system has not been working properly and owing to such a
faulty security system there has a robbery that has taken place causing loss to the Jewellery
shop. On claiming damages an exclusion clause has been pointed out by Transglobal Alarm
Monitoring Pty Ltd that limits any liability for the company and its employees for any defects
in the security system. For the purpose of assessing the validity of this clause, the valid
incorporation of the same needs to be ensured. Applying the principles established in the case
of L’Estrange v E. Graucob Ltd [1934] 2 KB 394, the agreement that has been signed by
both the parties contained the clause. Hence, it would be assumed that the clause has been

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validly incorporated and the same would be enforceable limiting the liability of Transglobal
Alarm Monitoring Pty Ltd.
Conclusion
Hence, it can be concluded that the exclusion clause is part of the contract, and it covers
the breach.

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References
Chapelton v Barry Urban District Council [1940] 1 KB 532
Clark v Macourt [2013] HCA 93
Hadley v Baxendale [1854] EWHC J70
L’Estrange v E. Graucob Ltd [1934] 2 KB 394
McDonald v Parnell Laboratories (Aust) Pty Ltd (2007) 168 IR 375
Photo Production Ltd v Securicor Transport Ltd [1980] AC 827
Robinson v Harman (1848) 1 Exch 850
Spurling v Bradshaw [1956] 1 WLR 461
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8
Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design &. Construction Pte Ltd
[2008] SGCA 27