Exclusion Clause in Contract Law: Case Study of Brisbane Diamond Jewellery vs Transglobal Alarm Monitoring Pty Ltd

This case study discusses the application of exclusion clause in contract law in the context of a legal action by the owner of Brisbane Diamond Jewellery against Transglobal Alarm Monitoring Pty Ltd to recover damages for the loss suffered by him. The article explains the law related to exclusion clause and its application in the case. It also explores alternative arguments to the case.

Australian Commercial and Corporations Law

Question 1
Issue
The key issue is whether the owner of Brisbane Diamond Jewellery will succeed in a legal
action against Transglobal Alarm Monitoring Pty Ltd to recover damages for the loss
suffered by him?
Law
The terms of a contract are binding on the parties, and breach of any term result in legal
consequences. In case a party failed to fulfil the term of the contract or did not comply with
it, then another party has the right to file a suit for breach of contract against him and claim
for damages. An exclusion clause is referred to a contractual term which is included in a
contract by a person to eliminate his/her liabilities or duties which raised due to breach of
such contract’s terms. This principle has the ability to terminate the right of a party to claim
damages from breaching party in case terms are not meet by him (Lawson 2011). The
inclusion of these terms in the contract is also called unfair terms since the objective of
these terms are to terminate the liability of a party. By using an exclusion or exemption
clause, the parties can limit the right of other parties to claim for remedy or demand
damages in case of breach of the contract. However, in order to rely on an exclusion clause,
certain elements are required to be fulfilled by the parties without which they cannot claim
the defence of the exclusion clause. Firstly, the general rule of exemption clause provides
that the contracting parties must bring in the attention of another party the exclusion clause
before or at the time the contract was formed (Anson et al. 2010).
The exclusion clause which did not bring in the attention of the contracting party cannot be
considered as accepted by the party. In Olley v Marlborough Court (1949) 1 K.B. 532 case,
the court provided that the exclusion clause must bring into notice by the party at the time
when contract was formed or before it (Sharrock 2010). Similar judgement was given by the
court in the case of Thornton v Shoe Lane Parking (1971) 2 WLR 585 case. The judgement
given by the court in the case of L’Estrange v Graucob (1934) 2 KB 394 is relevant to this
case study. The court provided in this case that when a written contract is formed between
parties, then both parties are bound by its terms irrespective of the fact whether they are
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aware of the exclusion clause or not. However, the court provided in the judgement of
Curtis v Chemical Cleaning (1951) 1 KB 805 case that if the term is included based on
misrepresentation then it cannot be considered as effective. Thus, the exclusion clause
protects the party of a contract from the liability to pay for damages by restricting the right
of another party to claim for damages (Koffman & Macdonald 2010).
Application
In the present case study, a contract for security and alarm monitoring services has formed
between Brisbane Diamond Jewellery and Transglobal Alarm Monitoring Pty Ltd. The
contract is in written format, and it bound both the parties into its terms. The contract is
formed for a period of 5 years, and till 2017, the security and monitoring system was
working fine. In June 2017, the owner of Brisbane Diamond Jewellery visited his store as
usual and found out that the security and monitoring system is not working. He later found
out the many pieces of diamond jewellery is stolen from the store. The owner had not
insured the premises in case a robbery took place in the shop. In order to receive his money
back and compensate for the loss, he is demanding damages from Transglobal Alarm
Monitoring Pty Ltd because the robbery occurred due to failure of its security and
monitoring system. However, Transglobal Alarm Monitoring Pty Ltd provided that clause 10
of their contract clearly provides that the company along with its employees will not be held
liable for any damages suffered by the party which are caused due to use of security and
monitoring infrastructure of the corporation.
As discussed above, this is an exclusion clause which protects Transglobal Alarm Monitoring
Pty Ltd from liabilities of damages suffered by its clients. Furthermore, the exclusion clause
also restricts the right of the owner of Brisbane Diamond Jewellery to file for damages from
Transglobal Alarm Monitoring Pty Ltd due to failure of its security and monitoring system. In
Olley v Marlborough Court case, a hotel room was booked by the claimant, and he filled the
contract at the reception. While signing of the contract, the exclusion clause was not
specified by the hotel staff. Furthermore, the claimant found out that a notice is written in
the back of the door in the hotel room which excludes the liability of the hotel in case of
lost, damage or theft of belongings of customer residing in the hotel. Later, the claimant
reported to the hotel staff that her coat is stolen (Stone 2013). The court provided in the
case that the notice written in the back of the hotel room door is ineffective. The principle of
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this clause is that it must be brought to the attention of the party while the contract is being
formed or before. The court provided that the notice written in the back of the hotel room
door does not form part of the contract, thus, the claimant is liable for damages.
The judgement given by the court in the case of Thornton v Shoe Lane Parking is relevant for
this case as well. In this case, the claimant was injured in the parking lot due to the
negligence of the defendant. While entering into the parking lot, the claimant was given a
ticket to park the car in the parking which was subject to terms (Willett 2016). One of the
terms was an exclusion clause which excluded the liability of the parking lot owner for
personal injuries to parties or property which arise through negligence. The question was
related to whether the offer and acceptance took place at the time when a ticket was given
to the claimant by the machine. The court provided that a contract was formed while a
ticket was issued by the machine since acceptance of the claimant was given when he put
money in the machine. It was held that the terms were displayed after the contract was
formed, thus, they cannot be considered as the part of the contract (Russell 2012).
Therefore, the defendant cannot rely on the defence of exclusion clause because it is not a
part of the contract.
Based on these cases, it can be seen that it is important for a party to bring to the attention
of another contracting party the exclusion clause. However, the judgement given by the
court in L’Estrange v Graucob case is relevant to this matter. This is a leading case in which
the claimant purchased a cigarette vending machine from the defendant’s shop in order to
use in her café. While purchasing the machine, the claimant signed an order form which was
subject to certain terms. One term was exclusion clause which terminated any liability
arising out of warranty of the machine. Based on this clause, the owner limited his liability
towards the working condition of the machine based on which he cannot be held liable in
case the machine did not work (Monaghan 2013). Furthermore, he limited the right of the
claimant to file a suit for damages against the owner in case the machine did not work
properly. The claimant found out that the machine did not work, and he filed a suit under
the Sale of Goods Act in order to reject the machine for not being of merchantable quality.
The court provided in this case that the claimant is bound by the written contract which she
signed with the defendant. It was held that the claimant could not reject the liability by
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relying on the fact that the exclusion clause was not read by him. Based on this fact, the
court rejected the claim for damages made by the claimant. A defence against this law is
given in Curtis v Chemical Cleaning case, in which the court held that the exclusion clause is
ineffective if it is included by misrepresentation in the contract (Lawson 2011). In the
present case study, the exclusion clause was written in the contract formed between the
owner of Brisbane Diamond Jewellery and Transglobal Alarm Monitoring Pty Ltd. The
contract was signed thus the owner is bound by its terms irrespective of the fact whether he
had read the terms or not. The defence of misrepresentation of the clause did not apply in
this case as well.
Conclusion
In conclusion, the owner of Brisbane Diamond Jewellery cannot demand damages for the
loss suffered by him from Transglobal Alarm Monitoring Pty Ltd due to the exclusion clause.
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Alternative Arguments
Issue
What are some alternative arguments to this case study?
Law
The party which is seeking the defence from an unfair term or exclusion clause must
demonstrate that they have given reasonable notice to the contracting party. In Thompson v
London, Midland and Scotland Railway Co (1930) 1 KB 41 case, the exclusion clause was
incorporated. In this case, the claimant was illiterate and unable to understand exclusion
clause which limits the liability of the railway towards personal injury and damage caused
due to negligence. The court held that it is necessary that reasonable steps are taken to
bring in the clause to the attention of the party; however, it is not necessary to let every
traveller become aware of the clause. In Interfoto Picture Library v Stiletto (1989) QB 433
case, the court provided that if the exclusion clause is particularly onerous than it is
necessary that more steps are taken by the party to ensure that the term brings to the
attention of the party (Lawson 2011).
Application
In the present case study, the exclusion clause was written in the contract which is signed by
the owner. The term was clear and Transglobal Alarm Monitoring Pty Ltd has taken
reasonable steps to bring it to the notice of the owner of Brisbane Diamond Jewellery.
However, as given in Interfoto Picture Library v Stiletto case, if the exclusion clause is of
serious nature and adversely affect the right of the party then more efforts should be made
by the party for bringing it to the attention (Cai 2015). It can be argued that this clause was
onerous since it violated the purpose of installing a security and monitoring system which
caused significant loss to the owner. Transglobal Alarm Monitoring Pty Ltd did not
specifically mention or bring into attention the exclusion clause, thus, the owner of Brisbane
Diamond Jewellery can file a suit to set aside the exclusion clause and claim for damages.
However, the chances of setting aside the exclusion clause are relatively low. As per the
principle of Parol Evidence Rule (PER), terms of a written and signed agreement cannot be
changed by the parties or set aside by any oral evidence which contradicts the terms of the
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written agreement. While signing the contract, the owner has to ensure that he read and
understood all the terms of the contract; thus, he cannot set aside the exclusion clause.
Conclusion
In conclusion, the owner can argue that Transglobal Alarm Monitoring Pty Ltd did not take
enough steps to bring in his attention the exclusion clause, however, it is expected that he
signed the agreement after reading it. Thus, based on the principle of PER, the exclusion
clause is unlikely to be set aside by the court.
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References
Anson, WR, Beatson, J, Burrows, AS & Cartwright, J 2010, Anson's law of contract, Oxford
University Press, Oxford.
Cai, W 2015, ‘The Relationship between a Duty of Good Faith and Implied Terms in English
Contract Law’, Exeter Student L. Rev., vol. 1, p. 1.
Curtis v Chemical Cleaning (1951) 1 KB 805
Interfoto Picture Library v Stiletto (1989) QB 433
Koffman, L & Macdonald, E 2010, The law of contract, Oxford University Press, Oxford.
L’Estrange v Graucob (1934) 2 KB 394
Lawson, RG 2011, Exclusion clauses and unfair contract terms, Sweet & Maxwell, London.
Monaghan, C & Monaghan, N 2013, Beginning Contract Law, Routledge, Abingdon.
Olley v Marlborough Court (1949) 1 K.B. 532
Russell, CA 2012, Opinion Writing In Contract Law, Routledge, Abingdon.
Sharrock, RD 2010, ‘Judicial control of unfair contract terms: The implications of Consumer
Protection Act’, S. Afr. Mercantile LJ, vol. 22, p. 295.
Stone, R 2013, Q&A Contract Law 2013-2014, Routledge, Abingdon.
Thompson v London, Midland and Scotland Railway Co (1930) 1 KB 41
Thornton v Shoe Lane Parking (1971) 2 WLR 585
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