Keenan and Riches’BUSINESS LAW

Chapter 9The terms of business contracts

This common law position is now subject to the pro-
visions of the Contracts (Rights of Third Parties) Act
1999, which was discussed in detail in Chapter 7. The
Act allows contracting parties to confer third-party
rights in relation to exclusion clauses in contracts such
as those dealt with in the Satterthwaitecase. (You should
note, however, the effect of s 7(2) of the 1999 Act in rela-
tion to s 2(2) of the Unfair Contract Terms Act 1977,
which is discussed later.)

Interpretation

Where a clause is duly incorporated into a contract, the
courts will proceed to examine the words used to see if
the clause covers the breach and loss which has actually
occurred. The main rules of interpretation used by the
courts are as follows:

1 Strict interpretation.An exemption clause will be
effective only if it expressly covers the kind of liability
which has in fact arisen. A clause, for example, which
excludes liability for a breach of warranty will not pro-
vide protection against liability for a breach of condition.

2 Contra proferentem.If there is any ambiguity or

doubt as to the meaning of an exemption clause the

court will construe it contra proferentem, i.e. against the

party who inserted it in the contract. Very clear words

must be used before a party will be held exempt from

liability in negligence.

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intended to be protected by the exemption clause; (2) the

carrier must make it clear that he is contracting both on

his own behalf and as agent for the stevedores; (3) the

carrier has authority from the stevedore to act in this

way; and (4) there is some consideration moving from

the stevedores. Legal draftsmen duly took notice of the

formula and it received the approval of the Privy Council

in New Zealand Shipping Co Ltdv A M Satterthwaite &

Co Ltd (The Eurymedon)(1974).

Baldryv Marshall(1925)

The claimant asked the defendants, who were motor

dealers, to supply a car that would be suitable for tour-

ing purposes. The defendants recommended a Bugatti,

which the claimant bought. The written contract excluded

the defendants’ liability for any ‘guarantee or warranty,

statutory or otherwise’. The car turned out to be unsuit-

able for the claimant’s purposes, so he rejected it and

sued to recover what he had paid. The Court of Appeal

held that the requirement that the car be suitable for

touring was a condition. Since the clause did not ex-

clude liability for breach of a condition, the claimant was

not bound by it.

Andrews Bros Ltdv Singer & Co Ltd

(1934)

The claimants agreed to buy some new Singer cars from

the defendants. A clause in the contract provided that

‘all conditions, warranties and liabilities implied by com-

mon law, statute or otherwise are excluded’. One of the

cars supplied was not new and the claimants were seek-

ing damages for breach of contract. The defendants

argued that they were protected by the exclusion clause.

The Court of Appeal held that the promise to supply new

cars was an express term of the contract. As the exclu-

sion clause covered only implied terms, the defendants

could not rely on the exclusion.

Whitev John Warwick & Co Ltd(1953)

The claimant hired a tradesman’s cycle from the defend-

ants. The written hire agreement stated: ‘Nothing in this

agreement shall render the owners liable for any per-

sonal injury.’ While the claimant was riding the cycle, the

saddle tilted forward and he was injured. The defendants

might have been liable in tort (for negligence) as well as

in contract. The Court of Appeal held that the ambiguous

wording of the exclusion clause would effectively protect

the defendants from their strict contractual liability, but it

would not exempt them from liability in negligence.

3 Repugnancy. Under this rule, a court can strike

out an exemption clause which is inconsistent with or

repugnant to the main purpose of the contract.

J Evans & Sons (Portsmouth) Ltdv

Andrea Merzario Ltd(1976)

The claimants had imported machines from Italy for many

years and for this purpose they used the services of

the defendant forwarding agents. When the defendants

changed over to containers, the claimants were orally

promised by the defendants that their goods would

continue to be stowed below deck. On one occasion, the

claimants’ container was stored on deck and it was lost