Business Law: Analysis of Exclusion Clauses and Contract Breaches

This document presents a detailed solution to a business law assignment (LAW 8500) focusing on Australian Commercial and Corporations Law. The assignment analyzes a case study involving Fine Diamond Jewellery and Transglobal Alarm Monitoring Pty Ltd. The solution applies the ILAC met...Read More

Running head: BUSINESS LAW
Business Law
Name of the Student
Name of the University
Author Note

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Table of Contents
1. Answer............................................................................................................................2
Legal Issue:................................................................................................................2
Law:............................................................................................................................2
Application:................................................................................................................3
Conclusion:................................................................................................................3
1. Answer............................................................................................................................4
Issue:..........................................................................................................................4
Rules:..........................................................................................................................4
Application:................................................................................................................5
Conclusion:................................................................................................................6
2. Answer............................................................................................................................7
Issue:..........................................................................................................................7
Law:............................................................................................................................7
Application:................................................................................................................8
Conclusion:................................................................................................................8
References:............................................................................................................................10

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1. Answer
Legal Issue:
The legal issue involved in the present case study is whether the Transglobal
Alarm Monitoring Pty Ltd will be allowed to avoid his liability towards the Fine
Diamond Jewellery by applying the exclusion clause provided in clause 10 in the
contract.
Law:
The exclusion clause can be depicted as a specific term in the contract that
particularly excludes one party to the contract from his liability to perform his part in
it. The exclusion clause can also limit the liability of the party to some mentioned
conditions or circumstances. Such exclusion clause can be included in a contract with
an intention for limiting or excluding the responsibility of a party for the breaching of
contract. The court will consider such clause to be valid as well as binding on the
parties if the conditions mentioned below are satisfied;
Incorporation in the contract: The exclusion clause may be incorporated in
contract by the following ways; by the signature, by notice or by previous course of
dealing. It can be included by means of signature by both the parties as seen in the
case of L’Estrange v E. Graucob Ltd [1934] 2 KB 394. If the parties sign the
written contract, then they are bound by the terms of the contract. But, if there is any
misrepresentation, the clause will have no effect as seen in Curtis v Chemical
Cleaning [1951] 1 KB 805. Further, the party who wants to depend on such clause
must provide a reasonable notice to bring it to the other party’s attention as seen in
Thompson v LMS Railway [1930] 1 KB 41. The clause can be incorporated by
means of past dealings as observed in Spurling v Bradshaw [1956] 1 WLR 461.

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Clear and free from ambiguous words:
The exclusion clause will be understood in its natural as well as ordinary meaning
as seen in George Mitchell (Chesterhall) Ltd v Finney Lock Seeds [1983] 2 AC
803. If there lies any ambiguity, the court will consider the clause against the party
seeking it as seen in Andrews Bros ltd v Singer Cars [1934] 1 KB 17. However, if
exclusion clause defeat the objective of the main contract, then it is ineffective as seen
in B-Gold Design & Construction Pte Ltd v Zurich Insurance (Singapore) Pte
Ltd [2007] 4 SLR 82 case
Application:
In the present case, it is seen that clause 10 of the agreement clearly mentions
that the Transglobal Alarm Monitoring Pty Ltd cannot be held liable for the loss
caused for using their security system. This clause amounts to an exclusion clause in
agreement of the contract. As per the conditions of the exclusion clause discussed
above, the clause was incorporated in writing in the agreement of the contract that
was signed by both the parties. Moreover, the words used in the clause were very
clear and free from ambiguity. Hence, it was included in the contract properly. But the
clause violates the main objective of the contract, hence not effective.
Conclusion:
Thus, from the above discussion, it can be concluded that Transglobal Alarm
Monitoring Pty Ltd will not be allowed to avoid his liability towards the Fine
Diamond Jewellery.

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2. Answer
Issue:
The issue to be discussed here is that whether Fine Diamond Jewellery can
succeed to receive compensation for losses incurred by it for the failure of the security
system provided by the Transglobal Alarm Monitoring Pty Ltd.
Rules:
When a party breaches a contract, that party is liable to pay damages to the
aggrieved party. Damages are the amount of compensation awarded by the court to
the aggrieved party for the loss suffered by him for the breach of contract. There are
two types of losses; the direct loss and the indirect or the consequential loss.
In a contract between two parties, if one party breached it, the damages which
the aggrieved party will receive due to that breach must be foreseeable and such
damage must arise from the breach directly or as the probable consequence of the
breach in the contemplation of both parties. Courts usually take into consideration
three important criteria to apply the foreseeability principle which are as follows;
 The party committing breach of contract shall recover the damages that arise
in the regular or usual course of business naturally,
 Recovery of damages is allowed for damage that has been contemplated by
both parties to the contract reasonably at the making of the contract as the
probable result of the breach.
 In order to foreseeable, the breaching party must have enough knowledge
regarding a particular condition to contemplate such damages.
In contract, the aggrieved party can recover those damages like the promisor
could have reasonably foreseen at the time of creating the contract the damages that
would result due to the breach of contract. This was enumerated in the case of Hadley

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v Baxendale [1854] EWHC J70 which allows the concept of consequential loss.
This case provides the leading rule for assessing the consequential damages resulting
from contract breach. The party who breaches is liable for the losses which the
contracting parties could foresee. However, such party will not be made liable to the
losses which he failed to foresee on the basis of the facts known to him.
The court usually considers the facts of the case to determine the extent of
liability of the breaching party to pay damages instead of proceeding with any
hypothesis as seen in McDonald v Parnell Laboratories (Aust) Pty Ltd (2007) 168
IR 375.
Application:
In this case study, it is seen that the plaintiff signed an agreement for standard
service with the Transglobal Alarm Monitoring Pty Ltd for providing services for
security and alarm monitoring for a period of 3 years. Though the alarm system
worked well initially, but on May, 2019, when the jewellery company owner went to
open his shop, he discovered that the alarm plus the monitoring system was not
functioning well. This show that the agreement signed by him was breached by
Transglobal Alarm Monitoring Pty Ltd. He further discovered that many jewellery
pieces were missing as they were stolen from the shop. Since the alarm system did not
work, the jewellery pieces were stolen and due to which the Fine Diamond Jewellery
incurred losses. The agreement was created to secure the shop as well as the jewellery
of it. Since the security system did not work well, the breaching party is liable for the
contract breach only as per the decision of Robinson v Harman (1848) 1 Exch 850
at 855.
However, the happening of the robbery or dacoity in the shop cannot be
foreseen and hence, the security company will not be made liable to pay the

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consequential losses. Courts usually take into consideration three important criteria to
apply the foreseeability principle which are as follows;
 The party committing breach of contract shall recover the damages that arise
in the regular or usual course of business naturally,
 Recovery of damages is allowed for damage that has been contemplated by
both parties to the contract reasonably at the making of the contract as the
probable result of the breach.
 In order to foreseeable, the breaching party must have enough knowledge
regarding a particular condition to contemplate such damages.
While applying the above conditions in the present case, it is seen that the
jewellery shop can recover the damages that arise naturally in the regular course of
things, recovery of damages is allowed for damages which can be contemplated by
both parties to the contract reasonably at the making of the contract as the probable
consequence of such contract breach. Here, it cannot be foreseen that the failure of the
security will induce happening of the robbery in the shop. Moreover, the breaching
party had no knowledge regarding the robbery to occur as it was remote to the breach
of contract. The security company was only assigned to provide services for security
and alarm monitoring for a period of 3 years to the jewellery shop. As the alarm and
the monitoring system did not work well, the security company will be liable for the
breach of it and not more than that.
Conclusion:
Thus considering the law discussed above and its application on the present
case, it is observed that Fine Diamond Jewellery will succeed to receive compensation
for losses incurred by it for the failure of the security system provided by the

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Transglobal Alarm Monitoring Pty Ltd but will not get any compensation for the loss
suffered by him due to loss of jewellery by robbery.
3. Answer
Issue:
The legal issue involved in the present case study is whether the Transglobal
Alarm Monitoring Pty Ltd will be allowed to avoid his liability towards the Fine
Diamond Jewellery by applying the exclusion clause provided in clause 10 in
contract.
Law:
The exclusion clause can be defined as a term in the contract that excludes one
party to the contract from his liability to perform his part in it. The exclusion clause
also imposes limitation on the liability of the party in some particular conditions,
situations or circumstances. Such exclusion clause is included in the contract with an
aim of limiting or even excluding the responsibility of one party in case he breached
the contract. The court will consider such clause to be valid and binding on the
contracting parties if the following conditions are satisfied;
Incorporation in the contract: This clause must be included in the contract by
the following ways; by the signature, by notice or by previous dealing. It can be
included by means of signature by both the parties as seen in the case of L’Estrange
v E. Graucob Ltd [1934] 2 KB 394. If the parties sign the written contract, then they
are bound by the terms of the contract. But, if there is any misrepresentation, it will
have no effect. The party who wants to depend on such clause must provide a
reasonable notice to bring it to knwoledge of the other party as seen in Thompson v

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LMS Railway [1930] 1 KB 41. The clause can be incorporated by means of past
dealings as observed in Spurling v Bradshaw [1956] 1 WLR 461.
Clear words:
The clause must be understood in its ordinary meaning as seen in George
Mitchell (Chesterhall) Ltd v Finney Lock Seeds [1983] 2 AC 803. If there lies any
ambiguity, the court will consider the clause against the party who plans to seek it as
seen in Andrews Bros ltd v Singer Cars [1934] 1 KB 17. However, if exclusion
clause defeat the objective of the main contract, then it is ineffective as seen in B-
Gold Design & Construction Pte Ltd v Zurich Insurance (Singapore) Pte Ltd
[2007] 4 SLR 82 case
Application:
In the present case, it is seen that the contract was successfully created
between two parties. It is in writing and it has been signed by both the parties. Thus it
can be said that both the parties must have agreed to the terms of the contract, then
only they signed it. The clause 10 though an exclusion clause was well incorporated
into contract. This clause was written and included in the agreement which was
approved by both parties by signing. Thus, the contract is binding on both parties as
per the law of contract. Clause 10 of the agreement clearly mentions that the
Transglobal Alarm Monitoring Pty Ltd cannot be held liable for the loss incurred by it
due to robbery because of the mal functioning of their security system. Hence it is
being part of the agreement, is binding on the parties.
Conclusion:
Thus, after perusing the discussion made above, it can be concluded that
Transglobal Alarm Monitoring Pty Ltd will be allowed to avoid his liability towards
the Fine Diamond Jewellery.

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References:
L’Estrange v E. Graucob Ltd [1934] 2 KB 394.
Curtis v Chemical Cleaning [1951] 1 KB 805.
Thompson v LMS Railway [1930] 1 KB 41.
Spurling v Bradshaw [1956] 1 WLR 461.
George Mitchell (Chesterhall) Ltd v Finney Lock Seeds [1983] 2 AC 803.
Andrews Bros ltd v Singer Cars [1934] 1 KB 17.
B-Gold Design & Construction Pte Ltd v Zurich Insurance (Singapore) Pte Ltd [2007]
4 SLR 82.
Hadley v Baxendale [1854] EWHC J70.
McDonald v Parnell Laboratories (Aust) Pty Ltd (2007) 168 IR 375.
Robinson v Harman (1848) 1 Exch 850 at 855.