Contents of contract

Sec. 2(h): Contracts are agreements enforceable by law.

- In order to enforce a particular contract, the validity of the contract must be

determined.
- Validity is determined through the formation of contract.

Sec. 9: A contract may be express or implied.

Parties will negotiate on the terms of the contract until they reach a consensus.

- When the terms of the contract are agreed upon, the contents of the contract
would have been established.
- Establishing the terms is important because it will determine the rights and
liabilities of both parties.

Status and classification of the terms will help determine:

- If it is binding between the parties

- What sort of remedy will be available in the event of a breach

Representation: A statement that induces a party to enter into a contract, which may be an
enforceable term or a mere representation, having no contractual effect.

- Not contractually binding

- Do not form part of the contract

Term: A statement becomes a term when it is incorporated into the contract, and becomes
part of the contract.

- They are intended to form part of the contract

- Legally binding, thus allowing the other party to sue for breach

Whether a statement is a term or a representation essentially rests on the intention of the

parties, which will be objectively assessed by looking at the surrounding circumstances of the
contract.

TESTS to distinguish between a term and a representation:

Time lapse: The court will look at the length of time between the making of the statement
and the conclusion of the contract.

- The longer the duration, the more likely the statement is a mere representation.
- Where there is a long lapse of time, there may have been no reliance upon the
statement, making it a mere representation.

- Van Den Esschert v Chappel: Before signing the contract, the purchaser asked
whether the timber house was affected by white ants. The seller assured him that
 there was no such problem and the sale was finalized. The house was later infested
by termites and the purchaser incurred expenses exterminating the pest and
repairing the damage to the house. He then sued for the costs of eradication and
repairs. Held: Although the seller’s assurance was not in the written contract, it
was a term nonetheless. Where the purchaser makes a specific request and gets
an affirmative answer immediately before signing the contract, the request was
intended to be made a part of the contract and to be regarded as a term.

Importance of statement: The court will look at the overall agreement in order to decide
whether the statement is to be regarded as a term.

- Facts and circumstance will be looked at to determine whether the statement’s

importance makes it a term or a representation.
- The greater the importance placed upon a statement, the more likely the
statement will be regarded as a term.

- Bannerman v White: The buyer wished to purchase some hops and asked whether
sulphur was used in the process of growing the hops. If it was, he would not bother
asking about the price. The seller replied that sulphur was not used, and the
parties entered into a contract. Later, there was evidence to show that sulphur
had been used on a small portion of the hops. The buyer refused to pay the
purchase price and argued that there was a breach of contract as the seller’s
statement amounted to a term of the contract. Held: The statement made by the
seller regarding the sulphur was a term of the contract. The buyer had placed
great importance upon the truth of the statement, and the contract was entered
into soon after the statement was made.

Statement not reduced to writing: If the statement is important, it would have been included
in the contract.

- If a contract has been reduced to writing and the statement in question is not
included in the contract, there is a higher likelihood that the statement is a
representation than an actual term.

- Routledge v McKay: In negotiating for the sale of the defendant’s motorcycle, the
defendant notified that the motorcycle was a 1942 model based on the
registration book. One week after the negotiations, they entered into a contract.
The contract was silent on the model of the motorcycle. The plaintiff later found
out that it was a 1930 model and argued that the defendant’s statement that it
was a 1942 model was a term and therefore, there had been a breach of contract.
Held: The plaintiff’s argument was rejected. The statement was a mere
representation because it was not reduced to writing.
Special knowledge or skill of parties: Where the maker of the statement has special skill and
knowledge compared to the other party, the likelihood is that the court will classify the
statement made as a term rather than a representation.

- The person making the statement has special knowledge, skill or is in a better
position to ascertain the accuracy of the statement compared to the person
receiving the information.
- E.g: where statements are made about second hand cars, the statement made by
a car dealer would be a term, whereas the statement made by a private seller
would be a representation.

- Tan Chong & Sons Motor Company Sdn Bhd v Alan McKnight: The respondent, a
member of the Royal Australian Air Force, agreed to buy a car from the appellants
and signed a Buyer’s Order. However, the respondent only bought the car on the
representations of the appellants’ salesman that the car conformed to the
Australian Design Regulations allowing him import duty exemption on the car. The
car supplied did not comply with the Regulations and the respondent had to sell
the car at a loss. The respondent claimed damages for breach of warranty. Held:
The respondent’s claim was allowed. There was no doubt that the representations
made by the salesman were what led the respondent to enter into the agreement.
The representations made by the salesman were binding upon the appellants as
the salesman had special knowledge and skill in regards to cars compared to the
respondent. There was evidence that had it not been for the promise of the
salesman to deliver him a car complying with the ADRs, the respondent would not
have signed the agreement.

Invitation to verify the truth of the statement: Where the maker of the statement suggests
to the other party to seek independent verification of the accuracy of the statement, the
statement is more likely to be held as a representation than a term.

- If there is an invitation to verify the truth, the statement is a mere representation,

as the maker does not intend for the statement to be relied upon.
- If there is no invitation to verify the truth, the statement is a term.
Terms

Condition: An essential term that forms a vital part of the contract, the breach of which gives
the innocent party the right to rescind the contract and claim damages.

- Section 12(2), Sale of Goods Act: a condition is a stipulation essential to the main
purpose of the contract, the breach of which gives rise to a right to treat the
contract as repudiated.

Warranty: A non-essential term, subsidiary to the main objective of the contract, the breach
of which only gives rise to an action for damages.

- Section 12(3), Sale of Goods Act: a warranty is a stipulation collateral to the main
purpose of the contract, the breach of which gives rise to a claim for damages, but
not to a right to reject the goods and treat the contract as repudiated.

Section 13, Sale of Goods Act: Buyer may waive the condition to be fulfilled by the seller or
elect to treat the breach of condition as a breach of warranty and not as a ground for treating
the contract as repudiated.

- Tham Cheow Toh v Associated Metal Smelters Ltd: Where there was a breach of
express condition by the appellant, the respondent could decide to waive it and
choose to treat the breach as a breach of warranty, thereby allowing him to carry
on with the contract and only claim for damages.

TESTS to distinguish between a condition and a warranty:

Test 1: Whether or not a term goes to the root of a contract.

- A term which goes to the root of the contract is a condition.

- Poussard v Spiers and Pond (condition): The plaintiff had an agreement with the
defendants to sing and play in a new opera for 3 months. She attended several
rehearsals, but was subsequently taken ill and was unable to perform at the
opening of the opera season. Her role was substituted by another person. When
she recovered, the defendants refused to accept her service. The plaintiff brought
an action for wrongful dismissal. Held: The plaintiff’s inability to perform at the
opening and early performances went to the root of the matter, and thus, justified
the defendants in rescinding the contract.

- Bettini v Gye (warranty): The plaintiff agreed to sing for the defendant for two
consecutive weeks and to be in London at least six days prior to the show for the
purpose of rehearsals. The plaintiff fell sick and arrived in London two days before
the first show. The defendant refused to employ the plaintiff. Held: The term
regarding rehearsals was not a condition and did not go to the root of the contract.
Thus, its breach did not entitle the defendant to rescind the contract.
 - In Bettini, the absence from rehearsals before the actual show was a less
important term, whereas in Poussard, the absence from the opera performance
was a breach which went to the root of the contract.

Test 2: The relative importance of the term to the party.

- An attempt to assess the intention of the innocent party in entering into the
agreement, and the state of mind of the party in breach.

- An essential term to the agreement is a condition.

- If a party would not have entered into the contract unless he was assured
of strict or substantial compliance with the term, and the party in breach
was aware of this, it would be considered a condition.
- A less essential term (secondary in nature) to the agreement is a warranty.

Test 3: Whether the consequences of the breach are serious.

- A consideration of all the relevant factors including the consequences of the

breach.
- Innominate or intermediate terms:
- Innominate terms are classified at the time the term is broken.
- Its true nature cannot be determined until a breach takes place.
- The right of the innocent party to treat himself as discharged from the
further performance of the contract depends upon the gravity of the
breach and its consequences.

- TEST: Whether the breach was such as to deprive the innocent party of
substantially the whole benefit intended for him under the contract, as the
consideration for the performance of his own undertaking.
- The degree/seriousness of the breach:
- Where the breach is serious/severe and the innocent party is substantially
deprived of the benefits under the contract
- The innocent party has the right to rescind the contract and to treat
himself as discharged.
- Where the breach is less serious
- The innocent party only has the right to claim for damages and not
to rescind the contract.

- Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd: A ship was chartered
to the defendants for two years. The agreement included a term that the ship
would be seaworthy throughout the period of hire. The problems developed with
the engine of the ship and the engine crew were incompetent. Consequently, the
 ship was out of service for 5 weeks and then a further 15 weeks. The defendants
treated this as a breach of condition and ended the contract. The claimants
brought an action for wrongful repudiation arguing the term relating to
seaworthiness was not a condition of the contract. Held: The defendants were
liable for wrongful repudiation. The court introduced the innominate term
approach. Rather than seeking to classify the term itself as a condition or
warranty, the court looked to the effect of the breach and asked if the breach had
substantially deprived the innocent party of the whole benefit of the contract.
Only where the question is answered affirmatively is it to be a breach of condition.
In this case, 20 weeks out of a 2-year contract period did not substantially deprive
the defendants of the whole benefit and therefore, they were not entitled to
repudiate the contract.

Express terms: Terms specifically agreed upon by the parties

- E.g: price, quality, quantity.

- Terms which are made to be vital and are written in the contract.
- May be agreed upon by word/mouth.
- Terms which are valid and enforceable.

Implied terms: Terms which, though may have been discussed, are not specifically included
in the contract.

- Terms which “goes without saying.”

- The courts will have to “read” or “imply” into the contract.

There are three ways in which a term can be implied:

By custom or trade usage:

- There are three requirements which must be fulfilled:

- The implication of the custom must not be inconsistent with the express
terms of the contract.
- Cheng Keng Hong v Government of the Federation of Malaya: The
applicant submitted his tender and entered into a contract with the
Ministry of Education for the building of a school, which included
the drawings and specifications of the work. A dispute arose
regarding the payment for electrical works done as there was a
variance in the specification and in layout drawings. The applicant
contended that it was a form of accepted practice for contractors
to put in their tenders based on the minimum conveyed in the
specifications and not on the drawings. Held: No such custom or
practice could be implied. The alleged custom was inconsistent to
the terms of the contract and as such was not a trade custom, but
merely a long established irregularity.
 - The implication of the custom or trade usage must first be established as a
form of reasonable practice.
- Preston Corporation Sdn Bhd v Edward Leong & Ors: A dispute arose
between the appellants, a publishing company, and the
respondents, a firm of printers, about the film positives used in the
printing of the books. The respondents contended that the films
were theirs and would only give up ownership if the appellants paid
for them. The respondents also claimed that there was a trade
usage entitling them to ownership of the film positives. Held: The
trade usage was not proved. The alleged usage is unreasonable
because it conflicts with the ordinary sense of justice commonly
understood in that a person who pays for an article or for making it
should be entitled to it and not be deprived of its ownership for
which he has paid or is required to pay.

- Knowledge of custom or trade usage.

- Cunliffe-Owen v Teather & Greenwood: If the practice is reasonable
as well as certain and notorious, then a party will be bound even if
he is not aware of it. If the practice is unreasonable, but certain and
notorious, it cannot constitute a usage, but if a party knows of it
and agrees to it, it will bind him.

By law:

- Terms may be implied through the common law and through statutes.
- Common law has implied terms into types of contract which commonly occur and
where there are precedents of obligations arising from the specific contractual
relationships.
- E.g: It is an implied term that an employee will serve diligently, loyally and
with reasonable competence.

- Terms implied through statutes can be seen as in the Sale of Goods Act 1957
- Section 14: Unless the circumstances show a different intention, there is:
- (a): An implied condition on the part of the seller that, in a sale, he
has a right to sell the goods, and in an agreement to sell, he has a
right to sell the goods at the time when the property is to pass.
- (b): An implied warranty that the buyer shall have and enjoy quiet
possession of the goods
- (c): An implied warranty that the goods shall be free from any
charge in favour of any third party not declared or known to the
buyer before or at the time when the contract is made.
- Niblett Ltd v Confectioners’ Materials Co Ltd (Sec. 14): The defendants had
sold 3000 cases of condensed milk to the plaintiffs who upon finding that
the goods infringed a registered trade mark had to remove the labels and
sell at a discount and as a result, suffered a loss. Held: The defendants had
breached the implied condition in Sec. 12 of the Sale of Goods Act 1893
(Sec. 14 of SOGA) as the goods were in breach of a trade mark held by a
third party. Thus, the plaintiffs were awarded damages.

- Rowland v Divall (Sec. 14(b)): The plaintiff sued the defendant for the
money paid for the car bought from the defendant. The plaintiff only used
the car for 6 months and had to surrender it to the true owner as it was a
stolen car. Held: There was a breach of implied warranty by the defendant.
The plaintiff was entitled to recover the purchase price for failure of the
defendant to provide consideration for the contract.

- Section 15: There is an implied condition that the goods shall correspond
with the description; and if the sale is by sample as well as by description,
the bulk of the goods which correspond with the sample must also
correspond with the description.

- ReMoore v Landauer: A sale of canned goods had to be packed 30 tins per

box. The correct quantity was delivered by the vendor but half of the boxes
only contained 24 tins. The plaintiff rejected the goods and refused to pay.
Held: The buyer had the right to reject the goods because the goods
supplied did not correspond with the description. Therefore, there was a
breach of an implied term.

- Section 16(1): There is no implied warranty or condition as to the quality

or fitness for any purpose of goods supplied, except:
- (a): Where the buyer, expressly or impliedly, makes known to the
seller the purpose for which the goods are required, it is an implied
condition that the goods shall be reasonably fit for such purpose.
- (b): Where goods are bought by description from a seller who deals
in goods of that description, it is an implied condition that the
goods shall be of merchantable quality.

- However, delivered goods which are sold are not necessarily of

merchantable quality.
- If the seller knew or had been informed of the purpose for
which the buyer needed the goods, then the buyer would
 be justified in relying upon the seller’s skill and judgment
to supply suitable goods to cater for the particular purpose.

- Barlett v Sidney Marcus Ltd: A second-hand car is ‘reasonably fit for such
purpose’ if it is in a roadworthy condition, fit to be driven along the road in
safety, even though not as perfect as a new car.

- Eastern Supply Co v Kerr: The respondent bought a second-hand car from

the appellants, and tested the car before agreeing to buy it. The car was
later found to be defective and the appellants were informed. The
respondent refused to pay for the car, pleading that it was not in a
roadworthy condition, thus in breach of an express or implied term of the
sale. Held: The respondent failed to prove that the car was not roadworthy.
Even if the appellants were in breach of the implied conditions, the
respondent had not rejected the car within reasonable time, and must,
therefore, be deemed to have accepted the car.

- Section 17(2): In a contract for sale by sample, it is implied that the bulk
shall correspond with the sample in quality; that the buyer shall have a
reasonable opportunity of comparing the bulk with the sample; that the
goods shall be free from any defect rendering them non-merchantable
which would not be apparent upon reasonable examination.

By courts:

- Where a term has not been expressly set out in the contract, the court may infer
from evidence that the parties must have intended to include it in the contract.
- However, courts will not imply a term merely because it would be a
reasonable term to include if the parties had thought about the matter.

- BP Refinery (Westernport) Pty Ltd v Shire of Hastings: Privy Council (Lord Simon):
For a term to be implied by the courts, several conditions must be satisfied:
- It must be reasonable and equitable.
- It must be necessary to give business efficacy to the contract.
- Satisfied: If it can be shown that the term sought to be implied is
necessary to give business efficacy to the transactions to enable it
to be efficient or produce the effect that was intended.
- It must be so obvious that ‘it goes without saying’
- Satisfied: If while the parties are negotiating and an officious
bystander were to suggest an express provision for their
agreement, they would testily suppress him with a common, “Oh,
of course.”
 - It must be capable of clear expression
- It must not contradict any express term of the contract
- Satisfied: If the implied term is not inconsistent with any express
term of the contract.

- Sababumi (Sandakan) Sdn Bhd v Datuk Yap Pak Leong: The Sandakan Turf Club,
formed to carry out gaming activities, was granted a licence to operate 3-Digit and
4-Digit lotteries. Gaming was prohibited by the Sabah Gaming Ordinance, but the
club was exempted from the provisions. On 26th November 1987, a written
agreement was concluded between the club and the appellant, whereby the
appellant was to buy 100 acres of land and to construct a racecourse on the land
at its own expense, and the club was to sublease the land and the racecourse to
the appellant for a period of 20 years. The appellant was given the exclusive rights
to conduct and manage all bets on the races at the racecourse and all 3-D and 4-D
operators throughout the State of Sabah. The appellant was to pay 2% of its gross
sale takings to the club on a joint venture basis.

The Sabah Gaming Ordinance was then repealed and replaced by Federal
legislation. The statute provided that the exemption and licence granted earlier
remained in force. In January 1995, the club was issued a new licence under
Federal law, to which one of the conditions was that it was personal to the licensee
and could not be transferred in any manner whatsoever. The appellant, however,
continued to carry on off-course betting activities after the 1995 licence was
issued, until the police stopped its activities. One of the issues was whether the
1995 licence was within the scope of the November 1987 agreement.

Held: In the agreement, the intention for both parties was for the club to grant an
exclusive right to the appellant to conduct off-course and on-course betting or
gaming for 20 years in consideration of payment to the club of 2% of all gross
takings from such betting activities. At the time of negotiating or signing the
agreement, if the officious bystander had asked the question whether such
exclusive right to operate off-course betting for 20 years would continue if the
licences and the exemption were issued or granted by any other laws, both parties
would have answered ‘Oh, of course.’ The answer to the officious bystander would
also give business efficacy to the business between the parties, in that it would
give the desired result of both parties under the agreement. There was therefore,
an implied term in the 1987 agreement covering the 1995 licence.
Parol Evidence Rule: Prohibits a person from adducing oral evidence where the terms of the
contract have been put into writing.

- The courts will not allow parties to adduce extrinsic evidence to add to, vary, or
contradict the terms of the written document.

- The rule aims to protect the written contracts’ original content, which will
contribute to maintaining its certainty and stability. Without the rule, no
agreement would be safe from being re-written by one party in a court of law.

- Section 91, Evidence Act 1950: When the terms of a contract… have been reduced
by or by consent of the parties to the form of a document… no evidence shall be
given in proof of the terms of the contract… except the document itself.

- Section 92: When the terms of any such contract… have been proved according to
Section 91, no evidence of any oral agreement or statement shall be admitted as
between the parties to any such instrument or their representatives in interest for
the purpose of contradicting, varying, adding to or subtracting from its terms.

- Exceptions (provisos) to the parol evidence rule under Section 92:

- Section 92(a): Any fact may be proved which would invalidate any
document or entitle any person to any decree of order relating thereto.
- Section 92(b): The existence of any separate oral agreement, as to any
matter on which a document is silent and not inconsistent with its terms,
may be proved. (Collateral contract)
- Section 92(c): The existence of any separate oral agreement constituting a
condition precedent to the attaching of any obligation under any such
contract.

- Tindok Besar Estate Sdn Bhd v Tinjar Co: The appellant was a contractor for the
extraction of timber for a company, who later decided not to carry on with the
work. An agreement was made between the appellant and the respondent where
the respondent undertook the work of extracting timber. There was a dispute as
to this agreement. The trial judge, in interpreting the agreement, admitted parol
evidence to prove several implied undertakings on the ground that not all the
terms had been incorporated into the agreement. Held: The Federal Court
disagreed with the trial judge’s approach. The evidence sought to be adduced did
not come within provisos (a) or (b) of Section 92, but was evidence adding a new
term to the agreement. Unless the additional evidence sought to be adduced fell
within any of the exceptions in Section 92, Evidence Act, it should not be
introduced as it would be to contradict, vary, add or subtract to the terms of the
agreement.
 - Chang Min Tat FJ: The contract could only be proved by the document
itself, and it is not open to the respondent to seek to introduce and the
judge to admit evidence that would… add new terms.

Collateral contracts: Used to overcome the parol evidence rule to admit pre-contractual
statements which had not been incorporated into the written agreement.

- To enable oral statements made to be admitted as a separate oral contract and

collateral to the principle agreement.
- Confers certain rights not in the main contract.

Conditions to be fulfilled to give rise to a collateral contract:

- The collateral contract must exist side by side (separately) with the main contract,
and yet independent.

- Tan Swee Hoe Co Ltd v Ali Hussain Brothers: The appellants orally agreed
to allow the respondents to occupy their premises for as long as they
wished on payment of $14,000 as tea money. Two written tenancy
agreements were executed, but these did not refer to the oral agreement.
Later, a dispute on rent arose between the parties and the appellants
issued the respondent with a notice to vacate the premises. The
respondents argued that under the agreement, they were allowed to stay
in the premises for as long as they wished so long as they paid the rent
regularly. Held: A collateral contract exists. An oral promise, given at the
time of contracting, which induces a party to enter into the contract,
overrides any inconsistent written agreement. The collateral contract
device does not offend the parol evidence rule because the oral promise
is not imported into the main agreement.

- The statement must be promissory in nature and has induced the party to enter
into the contract.
- A mere representational statement is an insufficient basis upon which a
collateral contract is to be found.
- Parties must have intended for the collateral contract to be incorporated.

- Tan Swee Hoe Co Ltd v Ali Hussain Bros: The parties must have intended or
must be taken to have intended that the oral promise was to form part of
the basis of the contractual relations between them.
 - The collateral contract must override any inconsistent written term.
- Where the collateral contract contradicts a written term in the main
contract, then it is said to override the inconsistent written term.

- Tan Chong & Sons Motor Company Sdn Bhd v Alan McKnight: The
representations made by the appellant’s salesman that the car complied
with the Australian Design Regulations were in conflict with condition No.5
printed on the reverse side of the Buyer’s Order signed by the respondent.
The condition stated that no warranty was given by the company. Held:
The representations made must be given an overriding effect and the
printed condition must therefore, be rejected.

- The collateral contract cannot destroy the main contract.

- The collateral contract cannot destroy the written contract entirely, as it
can only exist if there is a written contract.
- A collateral contract does not have the effect of substituting the main
contract.
- It merely confers certain other rights which are not incorporated in
the main contract.

- The burden of proving the existence of a collateral contract is upon the

party alleging its existence.

Exemption clauses: A term in a contract by which a party inserting the term seeks to
exclude/limit all/some of his liability in the event of a breach of contract.

Incorporation

An exemption clause must be incorporated into the contract as a term.

There are three ways in which an exemption clause may be incorporated.

Where a party has not signed a document or contract which contains an exemption clause,
the exemption clause may be incorporated by notice or by course of dealings. (Unsigned
document)

1. By notice:
- The burden is upon the party seeking to rely on the exemption clause to establish
that reasonable and sufficient notice had been given:
- A notice of the exemption clause must be given before or at the time the
contract is entered into.
- Olley v Marlborough Court Ltd: The plaintiffs paid for lodging at the
defendant’s hotel. In the hotel room, there was a notice stating that the
hotel would not be liable for the theft or loss of any items in the room. The
 wife’s fur coat was stolen from the room when they went out for a stroll.
The defendant argued that the notice in the room had been incorporated
into the contract. Held: The contract was entered into before the plaintiffs
entered the hotel room, and as a notice of the exemption clause was only
given after the contract was entered into, it was not incorporated into the
contract.

- The exemption clause must have been brought to the attention of the
party.
- An ordinary and reasonable person would have realised that there
was an exclusion clause written.
- The party seeking to rely on it should have taken reasonable steps
to bring it to the other party’s attention.
- Whether all that is reasonably necessary to give notice is a question
of fact to which the court must look at all the circumstances and
the situation of the parties.

- Parker v South Eastern Railway Co.: The plaintiff handed in a parcel worth
more than £10 at the cloakroom of the defendant’s railway station, paid
and received a ticket. At the back of the ticket was a condition that the
defendant would not be responsible for any package exceeding the value
of £10. The parcel was then lost. Held: It is not sufficient that the person in
question knows that there was writing on the ticket, but that he must know
or be given reasonable notice that the ticket contains conditions.
- The other party cannot simply be presumed to have had
knowledge of the exemption clause.
- It is for the person relying on an exemption clause to show that
sufficient notice of the clause had been given.

- The nature of the exemption clause must be reasonable.

- The exclusion clause must be in a document where contractual
terms are expected and not merely be found in a receipt.

- Chapelton v Barry Urban District Council: The hire of chairs for use on the
beach was 2d for 3 hours and the public was required to obtain tickets for
their chairs from a nearby attendant. The plaintiff paid for two chairs and
took two tickets. On one side was the statement that the defendant would
not be liable for any accident or damage arising from the hire of the chairs.
The plaintiff sat on the chair which gave way and resulted in an injury. Held:
The exemption clause could not be relied upon as it was found in a ticket
which was merely a receipt acknowledging the payment received.
 2. By course of dealing:
- Where the other party is a regular customer and there is a consistent course of
dealing between the parties.
- J Spurling Ltd v Bradshaw: The defendant bought eight barrels of orange
juice and sent them to the plaintiff warehousemen for storage. The plaintiff
sent him a receipt called a “landing account” which exempted the plaintiff
from liability from any loss or damage to the goods kept. The plaintiff then
sent an invoice stating that the goods are kept at the warehouse at the
owner’s risk. When the defendant collected the goods, all eight barrels
were damaged. Held: The plaintiff could rely on the exemption clause
having regard to the documents which had passed between the parties. By
the course of business and conduct of the parties, such conditions were
part of the contract.

- There must be sufficient communication between the parties to constitute

previous course of dealings.
- Hollier v Rambler Motors (AMC) Ltd.: In a period of five years, for three or
four occasions, the plaintiff had sent his car to the defendants for repairs.
The defendants’ practice was to have a form signed by the customer, which
contained a clause stating that they will not be responsible for any damage
caused by a fire to the plaintiff’s car on the premises. The car was then
damaged by a fire on the premises as a result of the defendant’s
negligence. Held: The clause could not be incorporated into the oral
contract made between the parties as three or four transactions over five
years were insufficient to constitute a course of dealing.

- There must be consistency in the dealings between the parties.

- McCutcheon v David MacBrayne Ltd: There was a record of previous
dealings between the parties, but there was inconsistency in that the
appellant’s agent was sometimes asked to sign a risk not containing the
exemption clause relied on and was sometimes not asked to sign it. Held:
The exemption clause could not be incorporated into the contract.

Where a party has signed a document or contract which contains an exemption clause, the
issues of incorporating an exemption clause by notice or by previous course of dealing
becomes irrelevant. (Signed document)

3. By signature in a written document:

- A party is bound by the contract even though he has not read the contract.
- L’Estrange v F Graucob Ltd: The plaintiff purchased a cigarette vending
machine from the defendant. The agreement contained a clause excluding
all implied warranties and conditions. The plaintiff signed the agreement,
 but did not read it and did not know of the exemption clause. The machine
broke down and the plaintiff claimed against the defendant on the basis
that it was delivered unfit for the purpose for which it was intended. Held:
The plaintiff was bound by her signature despite the fact that the relevant
clause was in small print and despite the fact that she had not read it.

- The signature rule will not apply if there was fraud or misrepresentation as to the
effect of the exemption clause.
- Curtis v Chemical Cleaning & Dyeing Co Ltd.: The plaintiff sent her wedding
dress, which had beads and sequins, to the defendant’s laundry. The shop
assistant gave her a receipt and asked her to sign it, stating that it was for
the exclusion of the defendant’s liability against certain risks, which in this
case was for the risk of damage to the beads and sequins. In fact, the
receipt excluded the defendant from liability for all risks, and not just
limited to the beads and sequins. When the dress was returned, there was
a stain on it. The defendant then relied on the exemption clause. Held: The
defendant could not rely on the exemption clause because the shop
assistant had misrepresented the exact scope of the clause.
Interpretation

After it has been determined that an exemption clause has been properly incorporated into
the contract, the clause must be interpreted to determine if it covers the event which has
occurred.

There are four matters in relation to the interpretation of exclusion clauses:

1. Contra proferentum rule

- Applies if there is an ambiguity in the meaning and scope of the words used. (E.g:
the phrase “howsoever caused” is too general)
- When the clause is open to two constructions
- When there is doubt as to the meaning and scope of the clause

- The court will interpret the ambiguous phrase strictly against the party relying on
the clause in favour of the other party.

- Malaysia National Insurance Sdn Bhd v Abdul Aziz bin Mohamed Daud: The
respondent drove his father’s car and was involved in an accident. The insurance
policy stated that the appellant would not be liable while the car is being driven
by any person other than the authorised driver. The respondent and his father
were named as the authorised drivers subject to the proviso that the person
driving was permitted in accordance with the licensing or other laws and
regulations to drive the motor vehicle or had been so permitted, and was not
disqualified by order of a court of law or by reason of any enactment or regulation
in that behalf from driving the motor vehicle. At the time of the accident, the
respondent had an expired driving licence but had not been disqualified by any
court for holding or obtaining a driving licence. The appellant denied liability and
relied on the exclusion clause. Held: The respondent fell within the category of
persons who had been “so permitted to drive the motor vehicle, and was not
disqualified by order of a court of law or by reason of any enactment or regulation
in that behalf from driving the motor vehicle.”
- Raja Azlan Shah FJ: If there is a doubt to the extent of the exemption
clause… the construction most favourable to the assured must be given to
him.

2. Effect of negligence
- Where the party relying on the clause “will not be liable for whatever caused”.
- The party must then show that he had exercised due diligence and care.
- The words used must be sufficiently clear to show the intention to exclude
negligence.
 - Chin Hooi Nan v Comprehensive Auto Restoration Service Sdn Bhd: The appellant
left his car to be waxed and polished by the respondents and was given a receipt
to claim for his car. At the back of the receipt, a clause provided that the company
will not be liable for any loss or damage to the vehicle and that the vehicle is left
at the owner’s risk. The car was damaged while being driven by an employee of
the respondents. Held: An exemption clause, however wide and general, does not
exonerate the respondents from the burden of proving that the damage caused to
the car was not due to their negligence and misconduct.

3. Rule of law
- Where there has been a fundamental breach, an exemption clause however
widely drafted, cannot be relied upon.
- A party should not be entitled to rely upon an exemption clause if he has
committed a breach which goes to the root of the contract.

- Malayan Thread Co. v Oyama Shipping Line Ltd & Anor: The plaintiff was the
consignee of cotton sewing threads which were shipped on board a ship belonging
to the first defendant. After the goods were unloaded at the ship’s side, they were
stolen by persons unknown. The first defendant relied on Clauses 2 and 15 of the
bill of lading which provided:
- Clause 2: the shipping company shall not be responsible for any
consequences arising or resulting from loss by robberies, thefts, pilferages,
by land or water, whether by persons in the employment or service of the
company or otherwise.
- Clause 15: In any case, the company’s liability shall cease as soon as the
goods leave the ship’s deck.
Held: The clauses were wide and exonerated the first defendant from liability.
- Raja Azlan Shah J: The correct approach is to consider whether on a proper
construction of the exemption clauses, the act which caused the short
delivery is covered by them. If so, then to consider whether such act is a
breach of a fundamental term.

4. Rule of construction
- A fundamental breach of contract does not automatically deprive the party in
breach the benefit of an exemption clause.

- Photo Production Ltd v Securicor Transport Ltd: The defendants agreed to provide
a visiting patrol service to the respondent’s factory, charging £8.15s a week. The
contract contained an exemption clause that ‘under no circumstances shall the
company be responsible for any injurious act or default by any employee of the
company unless such an act or default could have been foreseen and avoided by
 the exercise of due diligence on the part of the company as his employer.’ During
a visit, an employee of the defendants started a small fire that got out of control
and destroyed the entire factory with contents worth £615,000. Held: The
defendants had effectively modified their obligation under the contract to the
exercise of due diligence in their capacity as employers, and there was no evidence
of any lack of due diligence on their part to foresee or prevent the fire. The clause
was completely clear and adequate to cover the appellants’ position.
- HOL: There is no rule of law under the common law that whenever there
is a fundamental breach or a breach of a fundamental term, the party in
breach cannot rely on the exemption clause. It is always a rule of
construction as to whether the exemption clause is drafted wide enough
to cover the said breach.

- Whether a breach is covered by the exemption clause depends on:

- Whether the exemption clause is sufficiently clear and unambiguous to
receive effect in limiting the liability of the party in breach
- Whether a condition limiting liability is effective or not is a question of
construction of that condition in the context of the contract as a whole.