THE EFFECT OF EXCLUSION/LIMITATION CLAUSE TO THE EXPRESS TERMS OF A CONTRACT CASE SCENARIO

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Welcome again, in today’s post, we shall be focusing on the effect of exclusion/limitation clauses to the express terms of a contract, there is a case scenario down below and the question is going to be in line with the scene put below. The answer to it is going to be under two post and the link to the other will be found below. 

DAMIAN IS A WEALTHY BUSINESS MAN WHO LIVES IN ALAUSA AND WISH TO HAVE HIS FURNITURE TRANSPORTED TO HIS NEW HOUSE IN BANANA ISLAND. TO DO THIS, HE ENTERED INTO A CONTRACT WITH OLAMIDE. DURING THE COURSE OF THE NEGOTIATIONS, DAMIAN HAD REQUESTED THAT OLAMIDE UNDERTAKES THE JOURNEY THROUGH THIRD MAINLAND BRIDGE AND OLAMIDE PROMISED TO DO SO. OLAMIDE IS SELF-EMPLOYED AND OFFERED A PRICE SUSTAINABLY LOWER THAN ANY OTHER TRANSPORTATION FIRM BECAUSE HE OFFERED NO INSURANCE COVER AND THE CONTRACT BETWEEN THEM PROVIDES THAT “NO LIABILITY IS ACCEPTED FOR ANY DAMAGE, HOWSOEVER CAUSED TO THE GOODS DURING THE COURSE OF TRANSIT.” OLAMIDE EXPECTED THAT DAMIAN WILL USE HIS EXISTING INSURANCE OR TAKE OUT SPECIAL INSURANCE COVER TO PROTECT HIS PROPERTY WHILST IN TRANSIT. DURING THE COURSE OF TRANSIT, OLAMIDE DECIDED TO PASS THROUGH IKORODU, IN THE BELIEVE THAT, IT WILL BE A SHORTER JOURNEY. UNFORTUNATELY, OPC THUGS SET UP A ROADBLOCK AND DESTROYED MANY CARS INDISCRIMINATELY. OLAMIDE‟S TRUCK WAS ATTACKED AND ALL DAMIAN‟S PROPERTY WAS DESTROYED. DISCUSS

(B) WOULD YOUR ANSWER BE DIFFERENT IF THE CONTRACT PROVIDED THAT “NO LIABILITY IS ACCEPTED FOR LOSSES DUE TO THE CARRIER‟S NEGLIGENCE”?

The first issue to determine is whether the express statement in the negotiation constitutes a term and not a mere representation. The applicable test and most successful in this case is the party’s superior knowledge test which states that where the party have special knowledge on the subject matter of the contract, the statement is more likely to be a term of the contract; otherwise, it would be a mere representation. In Schawel v Read, the statement of the defendant that a vet wasn’t required in a contract of sale of a horse was held to be a term as he appeared to have considerable knowledge on the subject matter. Olamide is a private carrier in this contract; thus, this qualifies him to have special knowledge on several routes. It is therefore expedient to conclude that his promise to pass the agreed route was a term and not a mere representation.

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The next issue to determine is whether the term forms a condition, a warranty or an innominate or intermediate term. A Condition is the essential stipulation in the contract itself which when breached may give rise to a right to treat the contract as repudiated (or right to damages). In Poussard v Piers and Pond, it was held that a failure to perform at an opera went to the root of the contract and the defendants had the right to repudiate the contract. A Warranty is the Collateral stipulation in the contract whose breach may give rise to a claim for damages but not a right to reject the goods and treat the contract as repudiated. In Bettini v Gye, failure to partake in rehearsals before the actual performance in an opera was held to be breach of Warranty, remedy of which was damages and not repudiation.

The intermediate term is a distinct hybrid of Conditions and Warranty which results from ambiguity of terms in contract; a breach of which could either lead to repudiation or damages depending on the substantiality test which states that if the breach was so devastating so as to deprive the injured party of substantially; the whole benefit which he was to obtain from the contract, then the remedy would be repudiation; otherwise, damages. In Cehave v Bremer, though the 12,000 Citrus Pulp Pellet were not „shipped in good condition‟ as stipulated in the clause, it was held by the court that the goods were still useful for the intended purposes and the buyer was not entitled to reject it as it did not go to the root of the contract and they were entitled to damages and not rejection or repudiation.

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Applying the aforementioned rule, Olamide‟s term to convey the goods through a specific route just like the rehearsals in the Bettini’s case, was a collateral term as the goods could still be conveyed to the required destination through Ikorodu even though it was a breach of the agreed route. It could not also be regarded as a warranty because the breach went to the root of the contract (fundamental breach) as the entire furniture was destroyed by following the non-required route. Olamide‟s promise could thus, be seen as an intermediate term. However, the primary and most crucial issue is whether the exclusion clause inserted into the contract which exempts or purports to exempt liability for damages for whatever reasons, in this case; the deviation from the agreed route and the justification for it would avail Olamide. For an exclusion clause to be admitted, it must inter alia, be introduced to and agreed before the conclusion of the contract. In Olley v Malborough  and Thornton v Shoe Lane Parking Ltd, exclusion clause introduced after  the conclusion of the contract were held to be ineffective. Initially, before the decisions of the house of Lords in the Suisse Atlantique Societe d’Armament SA v NV Rotterdamsche Kolen Centrale and Photo Productions v Securicor case, it was generally believed that a party guilty of a fundamental breach of contract such as Olamide‟s deviation from the agreed route could not avoid liability by reliance on an exemption clause inserted into the contract for his benefit unless such deviation is justified as the other party to the contract is entitled to treat it as going to the root of the contract and declaring himself no longer bound by the terms. In Thorley v Orchiss SS. Co. Ltd , there was a deviation from the agreed route, this was however not the cause of damage to the cargo beans. Nevertheless, it was held that the carrier could not rely on an exemption clause because of the deviation. Lord Denning was also influenced to apply the fundamental breach rule in Harbutts Plasticine v Wayne Tank and Pump Company. The rule was also applied in the Nigerian case of Niger Insurance Ltd v Abed Brothers. Though, the court had reprised the decision of the rule of construction/interpretation in the Suisse atlantique case, it nevertheless, upheld the initial rule thereby setting aside the rule of construction emphasized in the latter case. Even when the clause specifically covered the incidence of an accident.

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