The more unreasonable a clause is the greater the notice
which must be given of it. Some clauses would need to
be printed in red ink with a red hand pointing to it
before the notice could be held to be sufficient.
The ‘red hand rule’ was applied by the Court of
Appeal in the following case.
4 Privity of contract.According to the doctrine of
privity of contract, a person who is not a party to a con-
tract can neither benefit from the contract nor be made
liable under it. So while a duly incorporated exemption
clause may protect a party to a contract, it will not pro-
tect his servants or agents. They are strangers to the con-
tract and so cannot take advantage of an exclusion or
limitation clause.Part 3Business transactions
288
Interfoto Picture Libraryv Stiletto Visual
Programmes Ltd(1989)
Stiletto, an advertising agency, ordered 47 photographic
transparencies from Interfoto, which operated a photo
library. The transparencies were accompanied by a deliv-
ery note which contained a number of conditions. Condi-
tion 2 provided that a holding fee of £5 per day was
payable in respect of each transparency retained after
14 days. Stiletto did not return the transparencies on
time and Interfoto sued for the holding fee payable under
Condition 2, which amounted to £3,785. The Court of
Appeal held that Condition 2 had not been incorporated
into the contract. Interfoto had not taken reasonable steps
to bring such an unusual, unreasonable and onerous term
to Stiletto’s attention. Interfoto was awarded £3.50 per
transparency per week on a quantum meruitbasis.3 Previous course of dealings. An exclusion clause may
be binding even though it has not been included in the
contract in question, if a previous course of dealings
between the parties on the basis of such terms can be
established. This principle has been accepted more readily
in commercial contracts than in consumer transactions.
J Spurlingv Bradshaw(1956)The defendant delivered eight barrels of orange juice to the
claimants who were warehousemen. A few days later
the defendant received a document from the claimants
which acknowledged receipt of the barrels. It also con-
tained a clause exempting the claimants from liability for
loss or damage ‘occasioned by the negligence, wrongful
act or default’ caused by themselves, their employees or
agents. When the defendant collected the barrels, some
were empty and some contained dirty water. He refused
to pay the storage charges and was sued by the claimants.
Although the defendant did not receive the document
containing the exclusion clause until after the conclusion
of the contract, the clause had been incorporated into
the contract as a result of a regular course of dealings
between the parties over the years. The defendant had
received similar documents on previous occasions and
he was now bound by the terms contained in them.Hollierv Rambler Motors (AMC) Ltd(1972)Mr Hollier entered into an oral contract with the de-
fendant garage to have his car repaired. While the car
was in the garage, it was damaged in a fire caused by
the defendant’s negligence. Mr Hollier had had his car
repaired by the defendant on three or four occasions in
the previous five years. In the past he had been asked to
sign a form which stated: ‘The company is not respons-
ible for damage caused by fire to customers’ cars on the
premises’, but he did not sign such a form on this occa-
sion. The defendant argued that the exemption clause
had been incorporated into the oral contract by
a previous course of dealings. The Court of Appeal
rejected this argument and held that the defendant was
liable. Three or four transactions over five years did not
constitute a regular course of dealings.Scruttons Ltdv Midland Silicones
Ltd(1962)
A shipping company (the carrier) agreed to ship a drum
of chemicals belonging to the claimants from New York
to London. The contract of carriage limited the liability of
the carrier for damage to $500 (£179) per package. The
drum was damaged by the negligence of the defendants,
a firm of stevedores, who had been engaged by the car-
riers to unload the ship. The claimants sued the defend-
ants in tort for the full extent of the damage, which
amounted to £593. The defendants claimed the protec-
tion of the limitation clause. The House of Lords held in
favour of the claimants. The defendants were not parties
to the contract of carriage and so they could not take
advantage of the limitation clause.
Comment. During the course of his speech in the House
of Lords, Lord Reid suggested a way in which the bene-
fit of an exemption clause could be made available to a
third party, such as the firm of stevedores in this case. He
said that four conditions must be fulfilled: (1) a contract
of carriage must specifically state that the stevedore is