TOPIC:

Exclusionary clauses in contracts are designed to provide protection to the party in breach or
default of contractual obligations. But the use of exclusion clauses to avoid liability is
circumscribed by legislative controls. This reflects a policy decision to maximize the protection
afforded to consumers by treating exclusionary clauses as unfair. Discuss. (Word count: 3,000
words, submit online: 25. January 2024)

1.0 INTRODUCTION
In some cases, one party to a contract may seek to avoid incurring liability for certain
breaches of the contract, or may specify that their liability for such a breach will be limited,
and that is what called exclusionary clause in a certain contact. 1However, a well drafted
exclusionary clause protects the defendant upon dispute, but where such a clause removes a
primary duty of a party in a contract it becomes unfair clause. Mostly these clauses are
contained in standard form contracts.2 This paper focuses on the clarification to how
exclusionary clauses can be used fairly to contracts involving consumers by looking on the
legislative and courts control on the said clauses, where the position at common law legal
system on legislations and the decided cases have been reviewed on the regulation of
exclusion clauses. On the issue of whether a clause has actually been incorporated into the
contract, it has been discussed on the part courts control of exclusion clauses, also the issue
of fundamental breach of contract terms has been discussed in this paper via the famous
decided cases.
Consumers normally involves themselves in commercial transactions as the end user
purchasers of the products for personal use as opposed to a business use. 3 The position at
common law legal system, contract involving consumers must not include business intending
profit gain by a consumer, for the exclusionary clauses are dealt different in the consumer
1
Elliot Contract law p. 157
2
Ibid, p. 158
3
Weir, J., and Thiele, S. A. (1998). Making Sense of Exemption Clauses. Advocates' Quarterly. 21(1). P. 74
 contracts and that of business. This paper has discussed the protection of consumers on the
said clauses by both legislative and courts control in protection. Protecting consumers in
contracts is still a challenge due to the development of technology.

2.0 MAIN DISCUSSION

This part focuses on the clarification on how exclusionary clauses have been discussed by
different authors, control by legislations and the position from different case laws on
circumstances of fair and unfair exclusionary clauses in contracts, as explained hereunder;

2.1 The Fairly use of Exclusionary clauses in Legal Contracts

Exclusionary clauses have same effects similar to any other clause of a contract and posses a
binding nature such that they are enforceable to the court of law. 4 Exclusionary clauses are legal
and enforceable terms of a contract and when drafted fairly can protect both the consumers and
the promisor in a certain contract. However, the measure of fairness of the said clauses is via the
courts’ interpretation upon contractual breach.

Exclusionary clauses not excluding the duties and liabilities set by the legislations are fair and
enforceable in the court of law. 5 The clauses that does not remove the primary duty of a party in
a contract, determines liabilities of such party upon breach of the contract. Consumers are
protected only where the exclusionary clause is legally and reasonable in accordance to the kind
of contract the parties conclude.

2.2 The Legislative Control of Exclusionary Clauses in Contracts

Sometimes contract terms are considered to be so unfair to one of the contracting parties that the
legislature or the courts have been prepared to intervene to prevent an injustice. 6 The law intends
to protect the last user of the products who engages in contracts, usually the consumers. This is
to ensure that justice is reached by the party drafting the exclusionary clauses, normally the
defendant upon dispute. The defendant in breach of contract is protected by exclusionary clause

4
Mohan M. R., and Jain A., (2020). Exclusion Clauses Under the Indian Contract Law: A Need to Account for
Unreasonableness. NUJS Law Review, 4. P. 5
5
Mozart H., (2016). Exemption Clause in the Law of Contract, its Significance in Tanzanian Context. P.2
6
Elliot P. 157
from certain liabilities covered by his legal duties in the particular contract that he did not owe
such a duty to the consumer of the product or service offered by him.

Statutes normally restricts the application of exclusionary clauses to the sale of goods to
consumers.7 However, defendants tends to escape their legal obligations set by legal provisions
by drafting unfair exclusionary clauses. If a party cannot enforce a primary obligation, and the
concurrent secondary obligation, it is in effect entitled to nothing. 8 The primary duties of a party
once waived by the exclusionary clause in a contract, then a contract cannot be enforceable for
the terms therein are illegal.

Under the common law legal system, dealing as a consumer one has not to make the contract in
the course of a business do not suggest that they are doing so, and the other party does act in the
course of a business.9 For a consumer to be protected in a certain contract from unfair
exclusionary clauses one must qualify as a consumer first.

In Tanzania, with regard to the concept of Agreements and contracts as well as terms and
conditions associated with exclusionary clauses, the most favorable statutory law in Tanzania is
the Law of Contract Act10, whereby it provides for what makes a contract void and not void.
There is no clear provision that expressively provides for how exclusionary clauses should be,
but since they form part of the terms and conditions on any contract then they should follow the
required provisions of the law of Contract. The law provides for what agreements form part of
contract, by considering free consent, lawful object of the contract where exclusionary clauses
are legally controlled.11 However, it is difficult to prove the consumers’ consent to promisor’s
exclusionary clauses in contracts, for some consumers lacks knowledge on the nature of the
contracts they enter.

The law explains free consent to mean that one not caused by coercion, undue influence, fraud,
misrepresentation, and mistake.12 Therefore, exclusionary clauses incorporated in a legal contract
must be proved by a party relying on them as defense, the defendant that the consumer entered

7
Weir, J., and Thiele, S. A. (1998). Making Sense of Exemption Clauses. Advocates' Quarterly. 21(1). P. 74
8
Maharaj, K. (2012). Limits on the Operation of Exclusion Clauses. Alberta Law Review, 49(3). P. 640
9
Section 12 of the Unfair Contract Terms Act, of 1977
10
[Cap 345, R.E 2019]
11
Ibid, section 10
12
Ibid, section 14 to 18
into contract freely. Most of unfair exclusionary clauses to consumers leads to contractual
disputes where free consent lacks on the party of a consumer, and that needs interpretation by the
court of law.13 The law requires that, parties to a contract must perform their respective
promises.14 However unfair exclusionary clauses by the promisor cannot be enforced. Therefore,
exclusionary clauses must follow the essential elements of a valid contract for them to be fair to
the consumers in the enforcement of contractual terms in Tanzania.

2.2 The Control by Courts on the Unfair use of Exclusionary Clauses in Legal Contracts
and protection of Consumers

The courts have expressed a considerable disapproval of unfair exclusionary clauses,

which were frequently used by larger and more powerful contracting parties to impose
harsh terms on smaller and weaker parties to contract including the consumers. 15 In
regulating exclusionary clauses the courts have been using the following ways; they may
question whether a clause has actually been incorporated into the contract, by the party
seeking to rely on the clause to prove incorporation, normally the defendant, and they
may question whether the words used in the clause can be construed as covering the
alleged breach? However, the following decided cases provide the position on control by
courts to the unfair use of exclusion clauses in contracts.

The case of L’Estrange v. Graucob, concerned a woman who had signed a hire-purchase
agreement for a cigarette vending machine, without reading it. The agreement contained,
in very small print, a broad exemption from liability for the product when the machine
proved defective. The court held that signing the contract meant that the woman was
bound by the exclusion clause, and therefore had no remedy. This case established a a
legal principle, that If a document is signed at the time of making the contract, its
contents becomes terms of that contract, regardless of whether they have been read.
However, the rule does not apply where there is any misrepresentation as to the nature of

13
Mozart H., (2016). Exemption Clause in the Law of Contract, its Significance in Tanzanian Context. P. 5
14
Section 37(1) of the Law of Contract Act, Cap 345, R.E 2019
15
Elliot 157 to 162
the document signed, because a consumer may have no knowledge on the kind of the
good in the contract connected to the terms as exclusion clause.

In Curtis v Chemical Cleaning and Dyeing Co (1951) Ms Curtis took a wedding dress
for cleaning, and was asked to sign a document exempting the cleaners from liability ‘for
any damage howsoever arising’. She queried the document, but was told it simply meant
the cleaners would not accept liability for any sequins or beads on the dress. She then
signed. When she collected the dress, it had a stain which was not there before, but the
cleaners denied liability, relying on the exclusion clause. The Court of Appeal held that
the statement made about sequins and beads misrepresented the effect of the clause, and
therefore the cleaners could not rely on it, even though Ms Curtis had signed the
document.

Legal Principle The rule in L’Estrange v Graucob does not apply where there has been a
misrepresentation as to the nature of the document signed.

The guiding principle regarding reasonable notice was laid down in Parker v South
Eastern Railway (1877). The claimant left his bag in a station cloakroom, paid the fee of
2d and received a cloakroom ticket in return. On the front of the ticket was printed details
such as opening hours of the office, and also the words: ‘See back’. On the back there
was a clause limiting to £10 the company’s liability for the loss of property left with
them. When the claimant returned to collect his bag, it had been lost. The bag was worth
£24 10s, so Mr Parker claimed that amount from the railway company; the company
maintained that their liability was limited to £10. The Court of Appeal said that a party
could be deemed to have had reasonable notice if they knew of the clause, or if
reasonable steps were taken to bring the clause to their notice. On the facts of the case the
limitation had been incorporated into the contract, and the train company was only
required to pay £10.

Legal Principle If separate written terms are presented at the time a contract is made,
those terms only become part of the contract if the recipient had reasonable notice of
them.
A similar issue arose in Thornton v Shoe Lane Parking (1971). The defendants ran a car
park which motorists entered by taking a ticket from a machine, which triggered the
raising of an automatic barrier. Mr Thornton did this, and parked his car, but when he
returned to the car park later, there was an accident in which he was injured. The ticket
stated that parking was subject to the conditions displayed on the premises, and various
notices in the car park stated that the company did not accept responsibility for damage or
personal injury. (The latter claim would be inoperative now under the Unfair Contract
Terms Act 1977 (discussed on p. 167 )). When the claimant sued for damages, the
defendants argued that they were exempt from liability, because of the clause. In deciding
whether the clause was in fact part of the contract, Lord Denning analysed the transaction
in terms of offer and acceptance, in order to decide when the contract was complete. He
reasoned that the offer was made by the car park proprietors placing the machine ready to
receive money. Acceptance took place when the customer drove up to the machine, and
the contract was then complete. The terms printed on the ticket which was delivered a
moment later by the machine therefore came too late.

Legal Principle An exemption clause is only incorporated into the contract if notice is
given before or at the time of contracting.

This issue of the incorporation of unusual and onerous clauses was the subject of
Interfoto Picture Library v Stiletto Visual Programmes Ltd (1988). the Court of Appeal
held that Stiletto were not contractually bound to pay the charge, stating that as the term
concerned was ‘very onerous’, the other party’s attention had to be drawn to it very
explicitly for it to be incorporated by reasonable notice. The court echoed a previous
statement by Lord Denning that: ‘Some clauses which I have seen would need to be
printed in red ink on the face of the document with a red hand pointing to it before the
notice could be considered sufficient.’ In this case, although the clause was not hidden in
any way – it was plainly printed on the delivery note – it was sufficiently onerous to
require that the picture library should take action to ensure that the agency knew about it,
rather than just assuming they would read it. Picture libraries frequently do impose
charges for late return, but £5 per transparency per day would be considered expensive
even today, let alone at the time when the case took place, and it seems that the high price
made the court consider the term particularly onerous (in fact the claimant was allowed to
recover £3.50 per week for each transparency returned late, as being a reasonable sum
due on a quantum meruit – see p. 376 ).

Legal Principle The more unusual or onerous a particular term is, the greater the degree
of notice required to incorporate it.

In R & B Customs Brokers Co Ltd v United Dominions Trust Ltd (1988) the claimant was
ashipping company, owned and controlled by a Mr and Mrs Bell. The company bought a
second-hand car from the defendants, for both business and personal use by the Bells;
they had made two or three similar purchases in the past. The UCTA provision on which
they sought to rely would only apply if they were dealing as consumers. Despite the fact
that the purchase was made by the company, and the car would be used partly for
business purposes, the Court of Appeal held that the Bells were dealing as consumers.
They stated that the question to ask was whether the transaction concerned was actually
an integral part of the business, or merely incidental to it. If a contract related to the main
purpose of a company (shipping goods in this case), the company concerned was acting
‘in the course of a business’ and could not be dealing as a consumer. However, if the
contract was incidental to the company’s main purpose, it would not be made ‘in the
course of a business’, unless it was clearly something which the company did regularly.
The Bells’ company was not in the business of buying cars, since it only bought one car
at a time and had only previously bought one or two cars, so the court held that, regarding
the contract in question, they were acting as consumers. If, for example, the Bells had
been car dealers, or if the contract had been concerned with buying packing cases, or
some other equipment required for their main purpose, that of shipping goods, the result
would have been different.

Legal principle the fact that a party is itself a business does not prevent it from ‘dealing
as a consumer’ for the purposes of UCTA.

The issue of fundamental breach of contractual terms by relying on the exclusionary

clauses by defendants has been discussed by various court decisions as follows
hereunder;
 In the case of Photo Production Ltd v. Securicor Transport Ltd,16 the court confirmed the
principle on fundamental breach of contracts, which was developed from 1950’s which
states that as a matter of law no exclusion clause could protect a party from liability for a
very serious breach of contract, even if the wording of the clause clearly covered the
breach which had been committed. In concurring with the principle the House of Lords
held that a fundamental breach could not be covered by an exclusion clause. However,
though the courts intends to protect the rights of consumers in commercial contracts, the
above principle seeks to prevent the exclusion of primary duties owed by a party relying
on exclusionary clause of a contract, but a legally exclusionary clause protects the
defendant from a certain breach one cannot control.

Also, in the case of Darlington Futures Limited v. Delco Australia Pty Ltd,17 this case
concerned with a contract between a futures broker and a company seeking to engage in
futures trading for tax minimisation. The broker, in breach of contract, failed to close out
certain contracts, resulting in heavy losses to the respondent. In an action to recover those
losses, the broker relied upon the following exclusion clauses: The Client’s acknowledges
that the Agent will not be responsible for any loss arising from trading by the Agent on
behalf of the Client, and that the Client’s acknowledges that the Agent will not be
responsible for any loss arising in any way out of any trading activity undertaken on
behalf of the Client whether pursuant to this Agreement or not.

In interpreting the mentioned exclusionary clauses of a contract in dispute, the court

stressed the importance of construing the language of an exclusion clause in the context
of the entire contract of which it forms part and giving due weight to the context in which
the clause appears including the nature and object of the contract, and, where appropriate
construing the clause contra proferentum in cases of ambiguity.

That approach was reinforced in Nissho Iwai Australia Ltd v. Malaysian International
Shipping Corporation, Berhad,18 It concerned an action against a carrier after the theft of
cargo, the High Court stressed that the construction of an exclusion clause depends upon

16
[1980] 1 All ER 556.
17
[1986] 161 CLR 500
18
[1989] 167 CLR 219
 its language read in context and not on a notion that the non delivery of goods was not
intended to be protected.

3.0 CONCLUSION

Therefore, exclusionary clauses in contracts are fair to the consumers in a particular contract if
follows the legal rules in drafting, for they can have ambiguous meaning in interpretation where
the party relying on such a clause intends to discriminate the consumer financially. However,
designing an exclusionary clause in a legally and reasonable manner protects the party in breach
of a contract, under which upon dispute it’s the defendant.