Exclusion of Liability For Negligence

The University of Queensland Law Journal Vol. 15 No.
2 157
Exclusion of Liability for Negligence
Jane Swanton*
Contracting parties often seem reluctant to make express reference

to negligence in exemption clauses. Evidently it seems too bare-
faced, or possibly prejudicial to customer relations, to foreshadow
negligence in the performance of the contract in so many words,
and disclaim responsibility for it explicitly.! Where there is no such
express reference to negligence the question not infrequently arises
whether an exemption from liability which is expressed in general
terms should be construed so as to apply to damage caused in that
way.
Among the rules of construction evolved by the courts for the
purpose of mitigating the harsh effect of exemption clauses is the
rule that exceptionally clear words are necessary if liability for
negligence is to be excluded. There is a presumption that, in insert-
ing protective provisions, a party is not intending, and would not
be understood, to refer to fault-based liability. The rule has been
formulated in fairly strong and specific terms in some of the earlier
cases. More recent English authority modifies the strictness of the
earlier formulations and emphasises that such judicial dicta are not
to be treated like statutory provisions. Since the enactment of the
Unfair Contract Terms Act 1977 (U.K.) which makes a strained or
hostile construction unnecessary in order to do justice in most
cases, the rule may be of little practical importance in English law.
It is proposed here to examine the present status and scope of the
rule in English and Australian law.
Formulations ofthe rule
It is convenient to set out the leading formulations of the rule,

while bearing in mind that, as noted above, some of the term-
inology is now generally regarded as unduly dogmatic.
In Rutter v. Palmer Scrutton L.J. said: 2
"In construing an exemption clause certain general rules may be applied:
First the defendant is not exempted from liability for the negligence of
his servants unless adequate words are used; secondly, the liability of the
defendant apart from the exempting words must be ascertained; then
the particular clause in question must be considered; and if the only
liability of the party pleading the exemption is a liability for negligence,
the clause will more readily operate to exempt him:"
*Senior Lecturer in Law, University of Sydney.

1. At any rate the courts are not often confronted with such provisions: The
Raphael [1982] 2 Lloyd's Rep. 42 at 51 per Stephenson L.J.; Hollier v.
Rambler Motors (A.M. C.) Ltd: [1972] 2 Q.B.71 per Salmon L.J. at 78.
2. [1922] 2 K.B. 87 at 92.
158 Jane Swanton
In Alderslade v. Hendon Laundry Ltd Lord Greene M.R. said: 3

" ... where the head of damage in respect of which limitation of
liability is sought to be imposed by such a clause is one which rests on
negligence and nothing else, the clause must be construed as extending
to that head of damage, because it would otherwise lack subject-matter.
Where, on the other hand, the head of damage may be based on some
other ground than that of negligence, the general principle is that the
clause must be confined in its application to loss occurring through that
other cause, to the exclusion of loss arising through negligence. The
reason is that if a contracting party wishes in such a case to limit his
liability in respect of negligence, he must do so in clear terms in the
absence of which the clause is construed as relating to a liability not
based on negligence. ' ,
In Canada Steamship Lines Ltd v. The King, Lord Morton,
delivering the advice of the Privy Council said: 4
"Their Lordships think that the duty of a court in approaching the
consideration of such clauses may be summarised as follows:-
(1) If the clause contains language which expressly exempts the per-
son in whose favour it is made (hereafter called the' 'proferens' ') from
the consequence of the negligence of his own servants, effect must be
given to that provision ...
(2) If there is no express reference to negligence, the court must con-
sider whether the words used are wide enough, in their ordinary mean-
ing, to cover negligence on the part of the servants of the proferens. If a
doubt arises at this point, it must be resolved against the proferens ...
(3) If the words used are wide enough for the above purpose, the
court must then consider whether "the head of damage may be based on
some ground other than that of negligence," to quote again Lord
Greene in the Alderslade case. The "other ground" must not be so
fanciful or remote that the proferens cannot be supposed to· have
desired protection against it; but subject to this qualification, which is
no doubt to be implied from Lord Greene's words, the existence of a
possible head of damage other than that of negligence is fatal to the pro-
ferens even if the words used are prima facie wide enough to cover
negligence on the part of his servants."
The rule of construction as formulated in the above-mentioned
cases has been accepted as part of Australian law. 5
3. [1945] 1 K.B. 189 at 192.

4. [1952] A.C. 192 at 208
5. Commissioner for Railways v. Quinn (1945) 72 C.L.R. 345 at 355-6, 365,
371,384-5; Davis v. Pearce Parking Station Pty Ltd (1954) 91 C.L.R. 642 at
649, 651; Sydney City Council v. West (1965) 114 C.L.R. 481 at 493-4,
499-500; Thomas National Transport (Melbourne) Pty Ltd v. May and
Baker (Australia) Pty Ltd (1966) 115 C.L.R. 353 at 376-7; Davis v.
Commissioner for Main Roads (N.S. W.) (1966) 117 C.L.R. 529 at 533,
536-7; Bright v. Sampson and Duncan Enterprises Pty Ltd (1985) 1
N.S.W.L.R. 346 at 359, 367; Imperial Furniture Pty Ltd v. Automatic Fire
Sprinklers Pty Ltd [1967] 1 N.S.W.R. 29 at 39-40, 48-9; Crouch v. Jeeves
(1938) Pty Ltd (1946) 46 S.R. (N.S.W.) 242 at 244, 250. It has also been
accepted in New Zealand: Producer Meats (North Island) Ltd v. Thomas
Borthwick and Sons (Australia) Ltd [1964] N.Z.L.R. 700; Hawkes Bay and
East Coast Aero Club Incv. McLeod [1972] N.Z.L.R. 289.
Exclusion ofLiability for Negligence 159
Rationale
The rule is often described as a corollary of the contra profer-

entem 6 rule, namely that exemptions from liability are to be con,..
strued strictly, with any ambiguities being resolved against the
party for whose benefit the provision was inserted (the proferens).7
Thus the language used must make it perfectly clear that liability
for negligence is intended to be excluded since it is "inherently
improbable that one party to the contract should intend to absolve
the other party from the consequences of the latter's own
negligence" .8 It is considered that' 'human nature being on balance
more inclined to optimism than pessimism, the parties are more
likely to be thinking in terms of non-negligent rather than negligent
performance of the contract." 9 This is why, if there is any other
ground of liability besides negligence to which the exemption could
realistically be assumed to be intended to apply, it will be taken to
apply to that ground and not to exclude liability for negligence.
The reasonableness of the result of holding that an exemption
covers liability for negligence has also been given as a basis of the
rule. It has been said that in "choosing between two or more
equally available interpretations of the language used it is of course
right that the court should consider which will be likely to produce
the more reasonable result, for the parties are more likely to have
intended this than a less reasonable result;" and that this is
"precisely the reasoning followed in Lord Morton of Henryton's
formulation in Canada Steamship Lines Ltd v. The King".l0 Ob-
viously the thinking underlying this dictum is that normally ex-
cluding liability for damage caused by one's own negligence would
be unfair and unreasonable. In a number of cases Lord Denning
M.R. went further than his brother judges in expounding the view
that all the rules of construction by which courts have sought to
6. Verba chartarum fortius accipuntur contra proferentem .- literally, "the

words of written documents are construed more forcibly against the party
putting forward the document" .
7. Smith v. South Wales Switchgear Co Ltd [1978] 1 W.L.R. 165 per Lord Keith
at 178; Davis v. Pearce Parking Station Pty Ltd. (1954) 91 C.L.R.642 at 649;
Producer Meats (North Island) Ltd v. Thomas Borthwick & Sons (Australia)
Ltd [1964] N.Z.L.R. 700 per North P. at 703; N.E. Palmer, Bailment (1979)
p. 926; G.H. Treitel, The Law of Contract (7th ed., 1987) pp. 171-2; D.E.
Allan & M.E. Hiscock, Law of Contract in Australia (1987) p. 248. It seems
that the better view is that the principle of strict interpretation and the contra
proferentem rule are not distinct but synonymous: see D.W. Greig & l.L.R.
Davis, The Law of Contract (1987) pp. 622-3; K.E. Lindgren, J.W. Carter,
D.l. Harland, Contract Law in Australia (1986) p. 215; Bright v. Sampson &
Duncan Enterprises Pty Ltd. (1985) 1 N.S.W.L.R. 346 per Samuels J.A. at
359; but cf. Anson's Law of Contract (26th ed., 1984) pp. 144-45; D. Yates,
Exclusion Clauses in Contracts (2nd ed., 1982) pp. 133,137.
8. Gillespie Bros. & Co Ltdv. Roy Bowles Transport Ltd. [1973] 1 Q.B. 400per
Buckley L.J. at 419; quoted by Viscount Dilhorne in Smith v. South Wales
Switchgear Co. Ltd [1978] 1 W.L.R. 165 at 168, Stephenson L.J. in The
Raphael [1982] 2 Lloyd's Rep. 42 at 50 and Mahoney J.A. in Bright v.
Sampson &'Duncan Enterprises Pty Ltd (1985) 1 N.S.W.L.R. 346 at 367.
9. The Raphael [1982] 2 Lloyd's Rep. 42 per Donaldson L.J. at 45.
10. Gillespie Bros & Co Ltd v. Roy Bowles Transport Ltd [1973] 1 Q.B. 400 per
Buckley L. J. at 421.
160 Jane Swanton
alleviate the unjust effect of exemption clauses, including the one

presently under consideration, are just a cover for the application
of a test of reasonableness. He thought that what the courts have
surreptitiously been doing is to uphold provisions which are
reasonable or operate reasonably and strike down those which are
unreasonable or have an unreasonable effect. ll
Further judicial interpretation oftheformulations.
Several developments should be noted:
(1) The first guideline l2 in Canada Steamship Lines Ltd v The

King. 13
This states that language which expressly exempts a person from
the consequences of his own or his servant's negligence must be
effective. One question is, what amounts to an express reference to
negligence? In Gillespie Brothers & Co Ltd v. Roy Bowles
Transport Ltd l4 it was held that the words "all claims or demands
whatsoever" constituted an express reference to negligence.
However the better view would seem to be that the word
"negligence" or a synonym for it must be employed for the clause
"expressly" to exclude negligence}S An argument that an express
exclusion of liability for negligence was ineffective because of a
reference in the contract to all reasonable care being taken by the
proferens was rejected in Spriggs v. Sotheby Parke Bernet & Co.
Ltd l6
(2) The second guideline in Canada Steamship Lines Ltd v. The

King l ?
This states that, if there is no express reference to negligence, the
11. George Mitchell (Chesterhall) Ltd v. Finney Lock Seeds Ltd [1983] 1 Q.B.
284; Photo Production Ltd v. Securior Transport Ltd [1978] 3 AllE.R. 146;
Levison v. Patent Steam Carpet Cleaning Co Ltd [1978] Q.B. 69; Gillespie
Bros & Co Ltd v. Roy Bowles Transport Ltd [1973] 1 Q.B. 400; criticised by
Buckley L.J. [1973] 1 Q.B. at 421 and by K.E. Lindgren, J.W. Carter & D.J.
Harland, Contract Law in Australia (1986) pp. 227-8. Query whether the
relevant time for the application of the test of reasonableness is the time of
reliance or the time of inclusion in the contract: N.E. Palmer, "Negligence
and Exclusion Clauses Again" (1983) Lloyd's Mar. & Com. Law 557 at 569.
12. This terminology was preferred to the word "test" by May L.J. in The
Raphael [1982] 2 Lloyd's Rep 42 at 48; cf. Stephenson L.J. at 51 who thought
it immaterial whether Lord Morton's three formulations of the duty of the
Court were called "principles", "tests", "rules", "rulings" or
"guidelines", so long as it was understood that they were not provisions in a
statute but aids to interpretation.
13. [1952] A.C. 192 at 208; see text to n.4, ante.
14. [1973] 1 Q.B. 400 per Buckley & Orr L.JJ. at 421.
15. Smith v. South Wales Switchgear Co Ltd [1978] 1 W.L.R. 165 per Viscount
Dilhorne at 169 and Lord Fraser at 172-3; The Raphael [1982] 2 Lloyd's Rep.
42 per Donaldson L.J. at 45 and May L.J. at 48.
16. (1986) 278 E.G. 969; cf Moran v. Lipscombe [1929] V.L.R. 10 ("Every care
but no responsibility").
17. [1952] A.C. 192 at 208; See text to n.4, ante.
court must consider whether the words used are wide enough, in
their ordinary meaning, to cover negligence - any doubt being
resolved contra proferentem. 18 Examples of expressions which have
been held to be wide enough are: "any act or omission" ,19 "at the
owner's risk" ,20 "no responsibility will be accepted for any loss of,
or damage to ... goods ... for any reason whatsoever" ,21
"discharged from all liability" 22, "customers' cars are
driven ... at customer's sole risk" 23 and "all claims from third
parties" .24 Those which have been held insufficient include: "at
charterers' risk" ,25 "all liability for any loss or damage" ,26 "cars
garaged and driven at owner's risk - Every care but no respon-
sibility" 27 and "shall not be liable" .28 In some of the cases judges
have drawn a distinction between the way in which damage is
caused (whether by negligence or not) and the kind of damage, say-
ing that a clause must not only make it clear that it is intended to
cover loss of the kind suffered, but that it is intended to cover that
loss whatever its cause or origin. Thus it is prudent for the pro-
ferens to add to words such as 'loss or damage', words such as
'howsoever arising' or 'due to any cause whatever' .29 However
decisions on the construction of one contract are of limited prece-
18. Though their Lordships quoted a passage in the Canadian Code in support of
the proposition that any doubts must be resolved against the proferens, it was
said in Producer Meats (North Island) Ltd v. Thomas Borthwick & Sons
(Australia) Ltd [1964] N.Z.L.R. 700 at 705 that reference to the report (at
207) demonstrates that the principle applied was a general principle of the
common law. D.W. Greig & J.L.R. Davis, The Law ofContract (1987) at pp.
630-1 have some difficulty in reconciling the reference in the second
guideline, on the one hand to the 'ordinary meaning' of the words, and then
to construction 'against the proferens' .
19. The Raphael [1982] 2 Lloyd's Rep. 42.
20. Davis v. Pearce Parking Station Pty Ltd (1954) 91 C.L.R. 642; Celthene Pty
Ltdv. W.K.f. Hauliers Pty Ltd [1981] 1 N.S.W.L.R. 606; Levison v. Patent
Steam Carpet Cleaning Co Ltd [1978] Q. B. 69.
21. Thomas National Transport (Melbourne) Pty Ltd v. May & Baker (Australia)
Pty Ltd (1966) 115 C.L.R. 353 per Windeyer J; Crouch v. Jeeves (1938) Pty
Ltd (1946) 46 S.R. (N.S.W.) 242; Sydney City Council v. West (1965) 114
C.L.R.481.
22. Port Jackson Stevedoring Pty Ltd v. Salmond & Spraggon (Australia) Pty
Ltd [1980] 54 A.L.J .R. 552.
23. Rutterv. Palmer [1922] 2 K.B. 87.
24. North ofScotland Hydro Electric Board v. D. & R. Taylor [1956] S.C. 1 at 9.
25. C. Wilh. Svenssons Travaruaktiebolag v. Cliffe Steamship Company [1932] 1
K.B.490.
26. George Mitchell (Chesterhall) Ltd v. Finney Lock Seeds Ltd [1983] 1 Q.B.
284 per Oliver & Kerr. L.JJ. at 306, 312-3 (the House of Lords disagreed
with this construction, see [1983] 2 A.C. 803, because, the clause in question
being a linlitation clause, the principles in Canada Steamship did not apply in
their full rigour to it); criticised by N .E. Palmer, "Negligence and Exclusion
Clauses Again" (1983) Lloyd's Mar & Com Law 557 at 562.
27. Moran v. Lipscombe [1929] V.L.R. 10.
28. Imperial Furniture Pty Ltd v. Automatic Fire Sprinklers Pty Ltd [1967] 1
N.S.W.R. 29 per Asprey I.A. at 49.
29. Joseph Travers & Sons Ltd v. Cooper [1915] 1 K.B. 73 at 101; Gibaud v.
Great Eastern Railway Co. [1921] 2 K.B. 426 at 434, 437; Rutter v. Palmer
[1922] 2 K.B. 87 at 92; Davis v. Pearce Parking Station Pty Ltd (1954) 91
C.L.R. 642 at 650; George Mitchell (Chesterhall) Ltd v. Finney Lock Seeds
Ltd [1983] 1 Q.B. 284 at 312; Sonat Offshore SA v. Amerada Hess
Development Ltd. [1987] 2 F.T.L.R. 220 at 233.
162 Jane Swanton
dent value so far as other contracts are concerned. Judges have

repeatedly warned that on matters of construction other cases pro-
vide a very uncertain guide. 30
One problem for the proferens is the danger that if he over-
stresses the width of the relevant phrase in order to pass test (2), he
might make it more difficult to argue that the provision does not
founder on test (3). It has been said that "many a party putting for-
ward such a clause to protect him might find it has got him out of
the frying pan of tlfe Privy Council's second principle into the fire
of its third" .31
(3) The third guideline in Canada Steamship Lines Ltd v. The

King. 32
Lord Morton said that even if the words used are prima facie wide
enough to cover negligence, nevertheless it is necessary to ask if
there is another ground of liability to which they might apply. If so,
and if the other ground is not "so fanciful or remote" that the
proferens cannot be supposed to have desired protection against it,
its existence is "fatal" to the proferens. The provision will be taken
to be intended to apply to the other ground of liability and not to
negligence. Thus, if the defendant is a common carrier who owes a
strict duty as well as a duty of care, the exemption may be con-
strued as only applying to the strict duty.33 Or if a supplier of goods
is strictly liable for their condition the exemption may not protect
him from liability for a defect which is due to negligence. 34 And
where a lessor had certain strict duties imposed by law an exclusion
of liability for damage to the lessee's goods did not apply to
damage caused by negligence. 35 Another example is where a party is
liable both for negligence and breach of statutory duty; an exemp-
tion expressed in general terms may only cover the latter .36
30. Crouch v. Jeeves (1938) Pty Ltd (1946) 46 S.R. (N.S.W.) 242 at 245; The
Raphael [1982] 2 Lloyd's Rep. 42 at 51; Hawkes Bay & East coast Aero Club
Inc. v. McLeod [1972] N.Z.L.R. 289 at 301, 308; John Lee & Son
(Grantham) Ltd v. Railway Executive [1949] 2 All E.R. 581 at 583; The
Emmanuel C [1983] 1 All E.R. 686 at 689.
31. The Raphael [1982] 2 Lloyd's Rep 42 at 52; see also at 48.
32. [1952] A.C. 192 at 208; see text to n.4, ante.
33. Davis v. Pearce Parking Station Pty Ltd [1954] 91 C.L.R. 642 at 650-1;
Sydney City Councilv. West (1965) 114 C.L.R. 481 at 494; Commissioner for
Railways v. Quinn (1946) 72 C.L.R. 345 at 355-6, 365, 371; Quinn v.
Commissioner for Railways (1946) 46 S.R. (NSW) 163 at 171; Rutter v.
Palmer [1922] 2 K.B. 87 at 94; Alderslade v. Hendon Laundry Ltd [1945] 1
K.B. 189 at 192; Hawkes Bay & East Coast Aero Club Inc. v. McLeod [1972]
N.Z.L.R. 289 at 295-6.
34. White v. John Warwick & Co. Ltd [1953] 1 W.L.R. 1285; George Mitchell
(Chesterhall) Ltd v. Finney Lock Seeds Ltd [1982] 1 Q.B. 284 per Oliver &
Kerr L.ll. at 306, 312-3; Imperial Furniture Pty Ltd v. Automatic Fire
Sprinklers Pty Ltd [1967] 1 N.S.W.R. 29.
35. Canada Steamship Lines Ltd v. The King [1952] A.C. 192.
36. Walters v. Whessoe Ltd & Shell Refining Co. Ltd (C.A. 1960, unreported,
applied in A.M.F. International Ltd v. Magnet Bowling Ltd [1968] 1 W.L.R.
1028 at 1056-7); cf Hawkes Bay & East Coast Aero Club Inc. v. McLeod
[1972] N.Z.L.R. 289 where Turner J thought that an exclusion clearly applied
to negligence but might not extend to breach of a more important statutory
duty.
The relevance of the existence of another head of liability is, of

course, "to show that sufficient meaning or content can be given to
an ambiguous clause without expanding it to cover liability for
negligence." 37 But the principle, in its literal terms, is clearly
capable of distorting what would otherwise be the plain meaning of
words, thereby yielding a strained construction. Recently the strict-
ness of the rule appears to have been relaxed. In The Raphael 38 the
English Court of Appeal was dealing with a claim for damage
resulting from negligent stowage by the defendant of a derrick on
the plaintiff's ship. The defendant relied on a clause in the contract
which excluded liability for "any damage loss injury costs or
expenses" arising from "any act or omission". The plaintiff
sought to argue that the exclusion could have been intended to refer
to damage resulting from delay; or fro"m nonperformance (as
opposed to negligent performance) of the contract; or to contrac-
tual (as opposed to tortious) liability in negligence; or to liability
for the torts of nuisance, conversion or detinue. With the exception
of liability for contractual negligence which would have to be
excluded if the clause covered tortious negligence, all these alter-
native grounds were rejected, either as falling outside the scope of
the clause or as being too esoteric to have been within the con-
templation of the parties. Thus the defendant's liability was held to
have been successfully excluded.
The Court emphasised that full force must be given to the caveat
that the "other ground" must not be "so fanciful or remote" that
it is unlikely that the parties would have had it in contemplation
and inserted a protective provision in respect of it. 39 It was said not
to be the duty of the court to "seek out, or think up, remote and
far-fetched possibilities in order to defeat the intention, which
would otherwise be derived from the plain meaning of the clause, to
protect the party relying on it from liability for negligence".4O Indeed,
it was queried whether the expression "fanciful or remote" carries
the correct shade of meaning. It was suggested by May L.J .41 that it
is not necessarily the case that so long as there is another ground
which is not totally unreal or speculative, the principle will apply
and liability for negligence will remain. In applying the principle,
other grounds of liability should be discarded if, on a reasonable
assessment of all the circumstances, it is unlikely that the parties
would have addressed their minds to them at the time of formation
of the contract. It is not only those which are totally implausible
and fantastic which should be left out of account.
The Raphael is in line with the notably more relaxed and per-
missive attitude towards exemptions from liability generally, which
is manifested in recent English cases. Lately English Courts have
emphasised that protective provisions are not necessarily to be
37. N.E. Palmer, Bailment (1979), p. 927.

38. [1982] 2 Lloyd's Rep. 42; discussed by N.E. Palmer, "Negligence &
Exclusion Clauses Again" (1983) Lloyd's Mar. & Com. Law 557.
39. Ibid. per Donaldson L.J. at 45.
40. Ibid per Stephenson L.J. at 51; Hair & Skin Trading Co. Ltd. v. Norman
Airfreight Carriers Ltd. [1974] 1 Lloyd's Rep. 443 at 445-6.
41. Ibid at 48-9.
164 Jane Swanton
viewed with hostility, especially in commercial contracts which

have been freely negotiated between parties who are in an equal
bargaining position. They are of course to be construed strictly,
with ambiguities resolved against the proferens, but it is said to be
improper to read in ambiguities by a process of strained construc-
tion. This view was articulated in particular in the two House of
Lords cases which, because both involved an alleged breach of a
contract to provide security patrol services by a company of that
name, have become known as Securicor 1 and 2. 42 It was said that, in
deciding whether the exemptions from liability were intended to
apply, it was necessary to note that the potential losses which may
result from breach of such a contract are great in proportion to the
sums which can reasonably be charged for security services, and to
take account of the fact that property insurance is more economical
than liability insurance. These factors led to the conclusion that it
was by no means implausible that the parties might have agreed to
insert stringent exemption clauses which threw the risk of loss or
damage on the property owner rather than the service provider.
Such an arrangement would be by no means unreasonable.
It might be thought that this change in attitude on the part of the
English courts was a reaction to the Unfair Contract Terms Act
1977 which deals with the unpalatable effects of exemptions from
liability, by wholly invalidating them in some circumstances, and in
other contexts subjecting them to a test of reasonableness.
Reference was made in Securicor ]43 to the fact that the need for
sophisticated refinements and judicial distortion of the English
language in order to do justice in the face of an unfair exemption
clause has been banished by the Act. On the other hand one com-
mentator 44 considers that the more permissive approach probably
predated the Act. Be that as it may, there is no equivalent legisla-
tion in Australia which deals specifically and comprehensively with
exemptions from liability, as does the Unfair Contract Terms Act
1977 (U.K.). Nevertheless the more lenient attitude of the English
courts seems to have met with approval in Australia. Thus, in the
latest pronouncement from the High Court in Darlington Futures
Ltd v. Delco Australia Pty Ltd 45 we find an apparent approval of
the dicta in the recent House of Lords cases and an endorsement of
42. Photo Production Ltd v. Securicor Transport Ltd [1980] A.C. 827; Ailsa
Craig Fishing Co Ltd v. Malvern Fishing Co. Ltd [1983] 1 All E.R. 101, 1
W.L.R. 964. The effect of these cases was summarised in George Mitchell
(Chesterhall) Ltd v. Finney Lock Seeds Ltd [1983] 1 Q.B. 284 by Lord
Denning M.R. at 296-301 and Oliver L.J. at 303-4.
43. Ibid per Lord Wilberforce at 843, Lord Diplock at 851 and Lord Scarman at
853; noted by Hutley J .A. in Life Savers (Australasia) Ltd v. Frigmobile Pty
Ltd [1983] 1 N.S.W.L.R. 431 at 435 and King C.J. in Delco Austra/ia Pty Ltd
v. Darlington Futures Ltd (1986) 127 L.S.J.S. 85 at 90-1.
44. N.E. Palmer, "Negligence and Exclusion Clauses Again" (1983) Lloyd's
Mar & Com. Law 557 at 564.
45. (1986) 161 C.L.R. 500; noted J. Kidd (1987) 50 Mod. L. Rev. 952.
Exclusion ojLiabilityjor Negligence 165
the 'natural and ordinary meaning' approach to the construction of

the words of an exclusion from liability. 46
This does not necessarily represent a "revolution" 47 or even a
change in direction in Australian law, since Australian judges never
went as far as the English courts in their attack on unfair exclusion
clauses. The rise and fall of the doctrine of fundamental breach,
for example, virtually by-passed Australia. In fact the High Court
in Darlington appeared to think that the present attitude of the
House of Lords to the construction of exemption clauses does not
differ materially from that which was taken by the High Court
itself in cases dating back to the nineteen sixties. Having referred to
four previous High Court decisions 48 the Court said: 49
"These decisions clearly establish that the interpretation of an exclusion
clause is to be determined by construing the clause according to its
natural and ordinary meaning, read in the light of the contract as a
whole, thereby 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 proferentem in case of ambig-
uity. Notwithstanding the comments of Lord Fraser in Ailsa Craig, the
same principle applies to the construction of limitation clauses."
The High Court in Darlington was not concerned to express an
opinion about the scope of the particular rule of construction with
which this article is dealing, since the breach of contract in question
was deliberate not negligent. However, the court's exposition of the
proper approach to the construction of exclusion clauses implies
that the third guideline in Canada Steamship must yield if its
application would defeat the parties' apparent intention or conflict
with the natural and ordinary meaning of the words used.
(4) Where negligence is the only liability.

It is no longer the case, in English law at any rate, that, in the words
of Lord Greene M.R. in Alderslade v. Hendon .Laundry Ltd,50
46. Ibid. at 507-10; see also Life Savers (Australasia) Ltd v. Frigmobile Pty Ltd
[1983] 1 N.S.W.L.R. 431 per Hutley J.A. at 434-5 and Mahoney J.A. at 439;
Bright v. Sampson & Duncan Enterprises Pty Ltd [1985]1 N.S.W.L.R. 346
per Mahoney J .A. at 365-6; Celthene Pty Ltd v. W.K.J. Hauliers Pty Ltd
[1981] 1 N.S.W.L.R. 606 at 618-20.
47. Lord Denning M.R. in George Mitchell (Chesterhall) Ltd v. Finney Lock
Seeds Ltd [1983] 1 Q.B. 284 at 296, 299 described the Securicor cases as
having "revolutionised" the approach to exemption clauses.
48. Sydney Corporation v. West (1965) 114 C.L.R. 481; Thomas National
Transport (Melbourne) Pty. Ltd v. May & Baker (Australia) Pty. Ltd (1966)
115 C.L.R. 353; H. & E. Van Der Sterren v. Cibernetics (Ho/dings) Pty. Ltd
(1970) 44 A. L.J.R. 157; Port Jackson Stevedoring Pty Ltd v. Salmond &
Spraggon (Aust.) Pty Ltd (1978) 139 C.L.R. 231.
49. (1986) 161 C.L.R. 500 at 510.
50. [1945] 1 K.B. 189 at 192; see text to n.3, ante. This kind of reasoning was
employed in Gibaud v. Great Eastern Railway Co. [1921]2 K.B. 426; Rutter
v. Palmer [1922] 2 K.B. 87; Smith v. Eric S. Bush [1987] 3 W.L.R. 889;
Crouch v. Jeeves (1938) Pty Ltd (1946) 46 S.R. (N.S.W.) 242; Sydney City
Council v. West (1965) 114 C.L.R. 481 per Kitto & Menzies JJ. (diss) at
493-4, 499-500; Thomas National Transport (Melbourne) Pty Ltd v. May &
Baker (Australia) Pty Ltd (1966) 115 C.L.R. 353 per Windeyer J. (diss.) at
376-7, 385-6.
166 Jane Swanton
"where the head of damage in respect of which limitation of liab-

ility is sought to be imposed ... is one which rests on negligence
and nothing else, the clause muSt be construed as extending to that
head of damage, because it would otherwise lack subject-matter"
(emphasis added). The word "must" in this passage is too strong.
It has since been held that it is possible, even in circumstances
where a duty to exercise care is the only relevant duty and therefore
negligence is the only ground of liability, to give meaning and
content to an exemption clause, but yet hold that liability for
negligence is not excluded. Thus it has been held that a bailee's duty
to exercise care with respect to the custody of the goods is not
necessarily excluded by an exemption which is expressed in general
terms, despite the fact that bailees owe no higher duty than one of
care. 51 A reasonable interpretation which may be placed on the
provision by the bailor, in an appropriate case, is that it is not an
exemption from liability at all, but just a warning or statement of
the general law. The bailee is simply informing the bailor that,
contrary to what he might otherwise assume, the law does not
impose strict liability on bailees for purely accidental loss of or
damage to the goods. 52 The purpose of such a warning may be
assumed by the bailor to be to inform him that he should insure
against such loss.
A more accurate expression of this aspect of the rule therefore, is
that of Scrutton L. J. in Rutter v. Palmer who said 53 that "if the
only liability of the party pleading the exemption is a liability for
negligence, the clause will more readily operate to exempt him"
(emphasis added). It seems that where a Court is left uncertain
about whether a provision is an exemption from liability or a mere
warning, the matter should be resolved against the defaulting
party.54
The Australian position may not be so clear. In Sydney City
Council v. West 55 and Thomas National Transport (Melbourne)
Pty Ltd v. May and Baker (Australia) Pty Ltd 56 members of the
High Court expressed themselves in terms similar to those of Lord
51. Olley v. Marlborough Court Ltd [1949] 1 K.B. 532; Hollier v. Rambler
Motors (A.M. C.) Ltd [1972] 2 Q.B. 71; Moran v. Lipscombe [1929] V.L.R.
10; Producer Meats (North Island) Ltd v. Thomas Borthwick & Sons
(Australia) Ltd. [1964] N.Z.L.R. 700; cf. Spriggs v. Sotheby Parke Bernet &
Co. Ltd. (1986)278£.0.969.
52. This kind of construction is criticised by E.M. Barendt (1972) 35 Mod L. Rev
644 at 646-7 on the ground that it is unlikely that the proferens intended such
a clause to be a mere warning.
53. [1922] 2 K.B. 87 at 92; see text to n.2, ante. In The Raphael [1982] 2 Lloyd's
Rep 42 at 49 May L.J. favoured the expression "should usually". It may be
noted however that the relevant provision in Alderslade v. Hendon Laundry
Ltd was a limitation clause which presumably would not be open to the
interpretation that it was a warning rather than an exemption provision.
54. Hollier v. Rambler Motors (A.M. e.) Ltd [1972]2 Q.B. 71 per Stamp L.J. at
83; Producer Meats (North Island) Ltd v. Thomas Borthwick & Sons
(Australia) Ltd [1964] N.Z.L.R. 700 per Turner J at 707; criticised by E.M.
Barendt (1972) 35 Mod L. Rev 644 at 646 on the basis that it reverses the
traditional principle of construction.
55. (1965) 114 C.L.R. 481 at 493-4 (Kitto J .),499-500 (Menzies J .).
56. (1966) 115 C.L.R. 353 at 376-7 (Windeyer J .).
Greene M.R. in Alderslade v. Hendon Laundry Ltd. 57 A protective

provision, it was said, must necessarily be intended to cover
negligence if negligence is the only form of liability. Otherwise the
clause would lack subject matter. However in the earlier case,
Moran v. Lipscombe5 8 a more flexible approach was taken. The
Victorian Full Court was dealing with a provision in a contract to
repair a car, saying: "Cars garaged and driven at owner's risk -
Every care but no responsibility". The Court held that liability for
negligence in the course of test driving the car was not excluded.
The provision was susceptible of the interpretation that it was not
intended to cut down common law liability, but rather constituted a
reminder or warning that the vehicle was at the owner's risk so far
as loss or damage which could not be avoided by reasonable care
was concerned. It is probable that Australian law is in line with
English law in this regard, and that the High Court judges in the
passages in the cases mentioned above were expressing themselves
in unduly emphatic language. 59
(5) Limitation Clauses
The House of Lords has now held that the Canada Steamship rules
do not apply in their full rigour to clauses which merely limit, as
opposed to totally excluding, liability. The leading cases are Ailsa
Craig Fishing Co Ltd v. Malvern Fishing Co. Ltd 60 and George
Mitchell (Chesterhall) Ltd v. Finney Lock Seeds Ltd. 61 In the
former Lord Wilberforce said: 62
"Whether a clause limiting liability is effective or not is a question of
construction of that clause in the context of the contract as a whole. If it
is to exclude liability for negligence, it must be most clearly and
unambiguously expressed, and in such a. contract as this, must be con-
strued contra proferentem. I do not think that there is any doubt so far.
But I venture to add one further qualification, or at least clarification:
one must not strive to create ambiguities by strained construction, as I
think that the appellants have striven to do. The relevant words must be
given, if possible, their natural, plain meaning. Clauses of limitation are
not regarded by the courts with the same hostility as clauses of exclu-
sion: this is because they must be related to other contractual terms, in
particular to the risks to which the defending party may be exposed, the
remuneration which he received, and possibly also the opportunity of
the other party to insure.
57. [1945] 1 K.B. 189 at 192.

58. [1929] V.L.R. 10; see also Paterson v. Miller [1923] V.L.R. 36 at 48; but cf.
Crouch v. Jeeves (1938) Pty. Ltd (1946) 46 S.R. (N.S.W.) 242.
59. This is the view of N.E. Palmer, Bailment (1979) at p. 926.
60. [1983] 1 All E.R. 101; [1983] 1 W.L.R. 964.
61. [1983] 2 A.C. 803.
62. [1983] 1 All E.R. at 102-3, 1 W.L.R. at 966.
168 Jane Swanton
Lord Fraser said: 63

"There are later authorities which lay down very strict principles to be
applied when considering the effect o( clauses of exclusion or of indem-
nity - see particularly the Privy Council case of Canada Steamship
Lines Ltd v. R. at p. 208, where Lord Morton of Henryton, delivering
the advice of the Board, summarised the principles in terms which have
recently been applied by this House in Smith v. U.M.B. Chrysler
(Scotland) Ltd. In my opinion these principles are not applicable in their
full rigour when considering the effect of clauses merely limiting liab-
ility. Such clauses will of course be read contra proferentem and must be
clearly expressed, but there is no reason why they should be judged by
the specially exacting standards which are applied to exclusion and
indemnity clauses. The reason for imposing such standards on these
clauses is the inherent improbability that the other party to a contract
including such a clause intended to release the proferens from a liability
that would otherwise fall upon him. But there is no such high degree of
improbability that he would agree to a limitation of the liability of the
proferens, especially when, as explained in c1.4(i) of the present con-
tract, the potential losses that might be caused by the negligence of the
proferens or its servants are so great in proportion to the sums that can
reasonably be charged for the services contracted for. It is enough in the
present case that the clause must be clear and unambiguous."
Though these dicta were subsequently endorsed in the later
House of Lords case of George Mitchell (Chesterhall) Ltd v. Finney
Lock Seeds Ltd,64 they did not find favour with the High Court of
Australia in Darlington Futures Ltd v. Delco Australia Pty Ltd. 65 It
was said there that the same principles of construction apply to
clauses of exclusion and limitation alike. In the passage in Darl-
ington Futures where the High Court expressed this view, they
specifically disapproved the dicta of Lord Fraser in Ailsa Graig.
Lord Fraser in that case said that the Canada Steamship principles
were not applicable "in their full rigour" to clauses which merely
limit liability. In view of the acceptance in earlier cases 66 of the
Canada Steamship rules as part· of Australian law, the High
Court's rejection of different principles of construction for limita-
tion and exclusion clauses must mean that those rules continue to
apply' 'in their full rigour" to clauses of limitation.
63. Ibid at 105-6,970. Oliver L.J. in George Mitchell (Chesterhall) Ltdv. Finney
Lock Seeds Ltd [1983] 1 Q.B. 284 offered another rationale saying (at 304)
that "a clause totally excluding liability tends to be construed more
restrictively than a clause merely limiting damages payable for breach, for a
total exclusion of liability, if widely construed, might lead to the conclusion
that there was no primary obligation at all and thus no contract"; discussed
by N.E. Palmer, "Negligence and Exclusion Clauses Again" (1983) Lloyd's
Mar & Com. Law 557 at 570-2.
64. [1983] 2 A.C. 803. Cf. Kerr L.J. in the Court of Appeal [1983] 1 Q.B. 284 at
313 who applied the Canada Steamship rules, distinguishing Ai/sa Craig on
the basis that the clause there was "worded in unusually strong terms";
criticised by N.E. Palmer, "Negligence and Exclusion Clauses Again" (1983)
Lloyd's Mar & Com. Law 557 at 559, 572-3.
65. (1986) 161 C.L.R. 500 at 510; noted J. Kidd (1987) 50 Mod. L. Rev. 952. See
text to n.49 ante.
66. See n.5, ante.
Criticisms
The following criticisms of the rule may be made:
a) Excessive rigidity
First, as noted above, it may still be the law in Australia that where
negligence is the only ground of liability, then the clause must apply
to negligence because otherwise it would lack subject matter. If so,
then the English experience has demonstrated that such a rule is
unnecessarily inflexible and can cause hardship, especially for con-
sumers.
Secondly, in the situation· where there is another ground of
liability to which the words of a clause could refer, the position
may be unsatisfactory. So long as the other ground is not "so
fanciful or remote that the proferens cannot be supposed to have
desired protection against it" 67 does its existence automatically rule
out exclusion of liability for negligence? Are the. parties deemed
conclusively to have intended the exemption to apply to the other
ground; with "fatal" 68 consequences for the argument that liability
for negligence is excluded? If this is so, the rule does seem excessive-
ly rigid and mechanica1. 69 It may be quite plausible that the parties
should have intended the exemption to cover negligence as well as
the other form of liability. It would be preferable to regard the
third principle as a presumption about the parties' probable inten-
tion rather than a rule to be applied automatically. This may well
be the law, since in many of the cases, including The Raphae/ 70 ,
courts have emphasised that the dicta of Lord Morton in Canada
Steamship Lines Ltd. v. The King 71 were mere guidelines or aids to
construction and are not to be treated like the words of a statute. In
the end, it is said, the scope of the protection given by an exemption
clause turns on the parties' intention.
A third respect in which the rule can be criticised for excessive
rigidity relates to the statement in the third guideline in Canada
Steamship that the other ground must not be so "fanciful or
remote" that theproferens cannot be supposed to have desired pro-
tection against it. A preferable approach may be that of May L.J.
in The Raphael.72 As noted above, he took a view more generous to
the proferens by suggesting that the alternative grounds which
should be left out of account are not solely those which can be
67. Canada Steamship Lines Ltd v. The King [1952] A. C. 192 at 208.
68. Ibid; Lord Greene M.R. in Alderslade v. Hendon Laundry Ltd [1945] 1 K.B.
189 at 192 expressed himself similarly, saying that where there is another
ground of liability than negligence, the clause "must" be confined in its
application to loss occurring through the other cause.
69. This is the view of N.E. Palmer (1982) 45 Mod L. Rev 322 at 327 and
"Negligence and Exclusion Clauses Again" (1983) Lloyd's ~far & Com. Law
557 at 565-7.
70. [1982] 2 Lloyd's Rep. 42 at 45 (Donaldson L.J.), 48-9 (May L.J.), 51
(Stephenson L.J.); Smith v. South Wales Switchgear Co. Ltd [1978] 1
W.L.R. 165 at 168 (Viscount Dilhorne), 178 (Lord Keith); Gillespie Bros &
Co Ltd v. Roy Bowles Transport Ltd. [1973] 1 Q.B. 400 at 414-5 (Lord
Denning M.R.); The Golden Leader [1980] 2 Lloyd's Rep. 573 at 574; The
Oceanic Amity [1983] 1 All E.R. 672 at 684-5.
71. [1952] A.C. 192 at 208.
72. [1982] 2 Lloyd's Rep. 42 at 48-9.
170 Jane Swanton
described as totally far fetched and fantastic, but simply those to

which it is unlikely that the parties would have addressed their
minds.
b) Artificiality of distinguishing the three guidlines in Canada
Steamship
It is doubtful whether there is any value in distinguishing tests (1)
and (2). The question whether (1) is only satisfied if the word
'negligence' or a synonym is used, or whether wider words will suf-
fice seems a rather sterile debate. Furthermore the usefulness of
distinguishing (2) and (3) may be queried. In many cases courts
have scrupulously applied themselves to the question in (2) before
proceeding to (3).73 But in determining the scope of the protection
given by an exemption, is it not artificial to look at the words of the
clause in the abstract, as required by the second guideline, without
reference to the various types of duty resting on the proferens for
breach of which protection might have been sought? The very .
reason why a "doubt" about the coverage of a clause, which has to
be "resolved against the proferens", may arise, is likely to be
because the possible breaches of duty which the parties had in mind
would have included breaches other than negligence. 74
c) Ambiguity in the second guideline in Canada Steamship.
It might be thought that there is an internal inconsistency in the
second guideline in so far as it calls first for a consideration of the
"ordinary meaning" of the language used, but then requires a strict
construction contra proferentem. It has been suggested 75 that there
would be few provisions which would fail the test if the sole inquiry
was whether, in their ordinary meaning, the words were wide
enough to cover negligence. But in fact the courts seem to have by-
passed this aspect of the test and to have adopted a strict construc-
tion contra proferentem approach.
d) No justification for distinguishing limitation clauses.
The view expressed in the English cases that the rules in Canada
Steamship do not apply to clauses of limitation as opposed to
clauses of total exclusion has generated considerable criticism. 76
73. eg Gillespie Bros & Co. Ltd v. Roy Buckley Transport Ltd. [1973] 1 Q.B. 400
at 420 (Buckley L.J.); Smith v. South Wales Switchgear Co. Ltd. [1978] 1
W.L.R. 165 at 168-9 (Viscount Dilhorne), 179 (Lord Keith); The Raphael
[1982] 2 Lloyd's Rep. 42; George Mitchell (Chesterhall) Ltd. v. Finney Lock
Seeds Ltd. [1983] 1 Q.B. 284 at 312-3 (Kerr L.J.); North oj Scotland Hydro
- Electric Board v. D. & R. Taylor [1956] S.C.l at 9-10 (Lord Patrick).
Australian Courts seemed less inclined to proceed in this way though Asprey
J.A. did so in Imperial Furniture Pty Ltd v. Automatic Fire Sprinklers Pty.
Ltd [1967] 1 N.S.W.R. 29 at 49.
74. Yeldham J. in Celthene Pty Ltd. v. W.K.J. Hauliers Pty Ltd [1981] 1
N.S.W.L.R. 606 at 616 appears to be merging (2) and (3) when he says that
the words of the clause "would appear to be sufficiently wide to exclude
liability for negligence as otherwise, in the case of a contract such as the
present, they would lack any content."
75. D.W. Greig & J.L.R. Davis, The Law ofContract (1987) pp. 630-1.
76. Anson's Law of Contract (26th ed., 1984) p. 148; D.E. Allan & M.E.
Hiscock, Law of Contract in Australia (1987) p. 254; D.W. Greig & J.L.R.
Davis, The Law of Contract (1987) pp. 665-6; N.E. Palmer (1982) 45 Mod.
L. Rev 322 and "Negligence and Exclusion Clauses Again" (1983) Lloyd's
Mar & Com. Law 557.
First, it is pointed out that a limitation clause may be so restrictive

as to be virtually indistinguishable in its effect from a clause of
total exclusion, for example where the proferens limits a large
potential liability to a derisory sum.?7 Secondly, it seems anomalous
that a clause of total exclusion is subj ect to especially rigorous
standards even though the potential liability at its maximum may
not be great, whereas a limitation clause is always to be tested by
more relaxed standards no matter how draconian its effect may be
in terms of the disparity between a very extensive actual loss and a
very smalllimitation. 78
Thirdly, there is the puzzling question of just what are the
"specially exacting standards" which Lord Fraser said apply "in
their full rigour" to clauses of exclusion or indemnity but not to
those which merely limit liability.79 Both Lords Wilberforce and
Fraser in Ailsa Craig Fishing Co. Ltd v. Malvern Fishing Co Ltd 80
accepted that limitation clauses must be clearly and unambiguously
expressed and will be construed contra proferentem. If the Canada
Steamship rules are really only a common sense corollary of the
contra proferentem rule it is not easy to see why and in what way
they are to be applied "less rigorously" to clauses of limitation.
Lord Wilberforce said in respect of limitation clauses that "one
must not strive to create ambiguities by strained construction" .81
Surely the inference cannot be that, with regard to exclusion
clauses, it is proper to strive to create ambiguities. Fourthly, there is
the question whether, as Kerr L.J. apparently thought in George
Mitchell (Chesterhall) Ltd. v. Finney Lock Seeds Ltd,82 there are
any exceptions to the rule that limitation clauses are subject to less
exacting standards. He considered that the Canada Steamship rules
did apply to the limitation clause before him, distinguishing the
clause in Ailsa Craig which he said was "worded in unusually
strong terms." Lastly there is the question whether other types of
protective provision are also to receive the more lenient treatment,
for example time-bar clauses or limited indemnity clauses.
Doubtless it was these kinds of consideration which underlay the
High Court of Australia's rejection, in Darlington Futures Ltd v.
Delco Australia Pty Ltd. 83 of different standards of construction
for clauses of limitation and of total exclusion.
77. Delco Australia Pty Ltd v. Darlington Futures Ltd (1986) 127 L.S.J .S. 85 per
King C.J. at 92; Darlington Futures Ltd v. Delco Australia Pty. Ltd (1986)
161 C.L.R. 500 at 510; K.E. Lindgren, J.W. Carter, D.W. Harland, Con-
tract Law in Australia (1986) p. 216.
78. N.E. Palmer, "Negligence and Exclusion Clauses Again" (1983) Lloyd's
Mar & Com. Law 557 at 575.
79. Ibid at 558-9; Allan & Hiscock, Ope cit. n. 76, ante, p. 254.
80. [1983] 1 All E.R. 101, 1 W.L.R. 964; see text to notes 62,63, ante.
81. Ibid. at 102, 966.
82. [1983] 1 Q.B. 284 at 313; criticised by Palmer, Ope cit. n.78, ante, at 559,
572-3.
83. (1986) 161 C.L.R. 500.
172 Jane Swanton
The scope and operation ofthe rule
i) Construction ofthe contract as a whole

In applying the rule presently under consideration, another rule of
construction must be borne in mind. This is the rule sometimes
expressed in the Latin terms ex antecedentibus et consequentibusfit
optima interpretatio, meaning that words must be construed in the
context of the whole of the term in which they appear and of the
whole document. 84 Thus in Canada Steamship Lines Ltd v. The
King 85 where the lease of a shed provided that the lessee should
have no claim against the lessor for damage to goods in the shed, it
was said that this clause should be read in the light of another pro-
vision whereby the lessor undertook to keep the shed in repair.
When so construed the exclusion afforded no protection against
liability for negligence in the course of effecting certain repairs to
the shed. Similarly in The Raphael 86 it was accepted that it was
legitimate to argue that an exclusion clause which did not expressly
cover negligence should be read in the light of other ·terms in the
contract which were more comprehensively worded and clearly
designed to protect against liability for negligence (though it was
held that failure to use the same comprehensive language in the
clause in question did not give rise to the inference that the drafts-
man had not intended negligence to be covered). However a caveat
to the rule should be noted. In The Oceanic Amity 87 an argument
similar to that in The Raphael was rejected for the reason that it
was well known that the more comprehensively worded clause in
the charterparty was not drawn by the same draftsman but lifted
from elsewhere. And in The Emmanuel C Bingham J. said: 88
"It would undoubtedly be wrong to approach this charterparty form on
the assumption that it "represents the work of a single all-seeing creator.
It is notorious that such forms contain clauses drawn from different
sources, and inserted at different times, sometimes to meet special prob-
lems ... Counsel for the o'.vners is accordingly right to warn against
close textual analysis of cl.16"
(ii) Status and relationship ofthe parties

In a number of cases it has been considered relevant to the inter-
pretation of exclusion clauses to take account of whether the con-
84. Darlington Futures Ltd v. Delco Australia Pty Ltd (1986) 161 C.L.R. 500 at
509, 510; Smith v. South Wales Switchgear Co. Ltd [1978] 1 W.L.R. 165 at
168 (Viscount Dilhorne), 173 (Lord Fraser); C. Wilh. Svenssons
Travaruaktiebolag v. Cliffe Steamship Co. [1932] 1 K.B. 490 Oat 499; Levison
v. Patent Steam Carpet Cleaning Co. Ltd [1978] Q.B. 69 at 80; George
Mitchell (Chesterhall) Ltd v. Finney Lock Seeds Ltd [1983] 1 Q.B. 284 at 304
(Oliver L.J.); The Oceanic Amity [1983] 1 All E.R. 672 at 685. This is the
reason why limitation clauses are not regarded with the same hostility as
exclusion clauses, according to Lord Wilberforce in Ailsa Craig Fishing Co.
Ltdv. Malvern Fishing Co. Ltd [1983] 1 All E.R. 101 at 103, 1 W.L.R. 964 at
966; criticised by N.E. Palmer (1982) 45 Mod. L. Rev 322 at 324-5.
85. [1952] A.C. 192 at 210.
86. [1982] 2 Lloyd's Rep. 42 at 47-8 (May L.J .), 51 (Stephenson L.J .).
87. [1983] 1 AlIE.R. 672 at 685.
88. [1983] 1 All E.R. 686 at 691.
tract is a consumer or commercial one, whether the parties are deal-

ing at arm's length and are of equal bargaining power, and whether
the terms have been freely negotiated or alternatively imposed by
one on the other. 89 That these factors are relevant to the application
of the rule presently under consideration would seem to follow
from the rationale of the rule as stated by Buckley L.J. in Gillespie
Brothers and Co. Ltd. v. Roy Bowles Transport Ltd. 90 namely that
"it is inherently improbable that one party to the contract should
intend to absolve the other party from the consequences of the lat-
ter's own negligence". The status and relationship of the parties
would be relevant to the determination of what the assumptions,
expectations, understanding, intention and knowledge of the plain-
tiff would be likely to be. Thus the understanding and expectation
of the class of person to whom the clause was addressed was
material to the interpretation of the particular provision in Hollier
v. Rambler Motors (A.M.C.) Ltd. 91 The question was whether a
term in a contract to repair a car, stating that the garage company
was not responsible for damage caused by fire to customers' cars
on the premises, was an exemption from liability or a mere warning
or reminder that the company was not liable in the absence of
negligence. It was held that the clause was insufficiently clearly
worded to bring home to a layman 92 such as the plaintiff that the
company was seeking to exclude its liability for fire caused by its
own negligence.
On the other hand the "inherent improbability" of one party's
having agreed to absolve the other from liability for his own
negligence is not always apparent. In Ailsa Craig Fishing Co. Ltd.
v. Malvern Fishing Co. Ltd. 93 it was thought that the owners of
89. Photo Production Ltd v. Securicor Transport Ltd [1980] A.C. 827 per Lord
Wilberforce at 846, Lord Diplock at 851; H. & E. Van Der Sterren v.
Cibernetics (Holdings) Pty. Ltd (1970) 44 A.L.J.R. 157 per Walsh J. at 158;
Davis v. Commissioner for Main Roads (1966) 117 C.L.R. 529 per Kitto J. at
534; Levison v. Patent Steam Carpet Cleaning Co. Ltd [1978] Q.B. 69 per
Lord Denning M.R. at 78-9; Hawkes Bay & East Coast Aero Club Inc. v.
McLeod [1972J N.Z.L.R. 289 per North P. at 295 & Turner J. at 300; Hair &
Skin Trading Co. Ltd. v. Norman Airfreight Carriers Ltd. [1974] 1 Lloyd's
Rep. 443 at 446; B. Coote, "The Effect of Discharge by Breach on Exception
Clauses" [1970] Cambridge L.J. 221 at 240, [1972] Cambridge L.J. 53 at
57-8, [1973] Cambridge L.J. 14; K.E. Lingren, J.W. Carter & D.W.
Harland, Contract Law in Australia (1986) p. 226; D.W. Greig & J.L.R.
Davis, The Law of Contract (1987) pp. 635-6; cf. D.E. Allan & M.E.
Hiscock, Law of Contract in Australia (1987) at 254-5 who consider it to be a
question unanswered in the English decisions, whether there is one standard
for parties dealing at arm's length and of equal bargaining power, and
another where the contract terms have been initially imposed by one on the
other.
90. [1973] 1 Q.B. 400 at 419.
91. [1972] 2 Q.B. 71.
92. In the Emmanuel C [1983] 1 All E.R. 686 at 689, Bingham J. said that though
the standard of the intelligent layman will be appropriate in many
circumstances, "where a contract is made in a specialised business by two
practitioners in that business . . . a somewhat different standard is indicated,
approximating to that of the reasonably informed practitioner in the field in
question" .
93. [1983] 1 All E.R. 101, 1 W.L.R. 964.
174 Jane Swanton
fishing vessels which were lost due to the negligence of the security
patrol company employed to guard them would not be surprised to
find stringent exempting provisions in the contract. In view of the
low charge made for the services, the large potential losses which
might result from negligence on the company's part and the
likelihood that property owners would be insured, protection
against liability for negligence would be neither unexpected nor
unreasonable. 94
In these cases the courts were primarily considering what the
assumptions and expectations of the plaintiff would be. The
presumed intention of the projerens is also obviously important.
After all, the third test in Canada Steamship Lines Ltd. v. The
King 95 mandates an inquiry into the various forms of liability
which he would have had in contemplation and against which he
might have sought protection. 96 But where the understanding of the
class of person to which the plaintiff belongs would differ from the
likely intention of the projerens, it seems that the courts lean
towards a construction favourable to the former .97
(iii) Insurance
It is clear that in construing exemption clauses courts do not close
their eyes to the actual or probable insurance position of the parties
in the contest before them. Indeed the comment has been made
that: "The availability of insurance lies at the root of most of the
decisions on this topic, and it may well be that courts are influenced
by the fact that property insurance is notoriously less expensive
than liability insurance" 98 The typical situation in which the in-
surance factor is likely to be most influential would be one where
property damage has been caused by negligent performance of a
service, where the charge for the service is relatively small in prop-
ortion to the possible losses which might result from negligence and
where property insurance is prevalent and more economical than
liability insurance. In these circumstances it would be expected that
courts would lean in favour of the construction that an exemption
covers liability for negligence.
Of course insurance or insurability are not always, nor even
usually, expressly mentioned in the cases. However, even in some
of the earlier cases open advertence to the insurance position can be
94. See also Photo Production Ltdv. Securicor Transport Ltd. [1980] A.C. 827
and Davis v. Pearce Parking Station Pty. Ltd (1954) 91 C.L.R. 642 at 652
where it was said that the plaintiff would expect an exclusion of liability for
similar reasons. Hutley l.A. in Life Savers (Australasia) Ltd v. Frigmobile
Pty. Ltd. [1983] 1 N.S.W.L.R. 431 at 435 accepted that the assumption of or
exemption from legal burdens cannot be disassociated from the costs of
providing a service.
95. [1952] A.C. 192 at 208.
96. Stephenson L.l. in The Raphael [1982] 2 Lloyd's Rep. 42 at 51 said that in
formulating the third principle Lord Morton was considering the supposed
intention of the projerens.
97. E.M. Barendt (1972) 35 Mod L. Rev 644 at 646-7 considers that the projerens
in Hollier v. Rambler Motors (A.M.C.) Ltd. [1972] 2 Q.B. 71 no doubt
intended to exclude liability for negligence.
98. D.E. Allan and M.E. Hiscock, Law o/Contract in Australia (1987) p. 256.
found. Thus in Rutter v. Palmer 99 the question was whether a pro-

vision that customers' cars were driven "at customers' sole risk"
protected the defendant against liability for negligently caused
damage to the plaintiff's car which had been deposited with the
defendant for sale on commission. In construing the provision as
extending to cover negligence Bankes L.J. said 100 that "it is well
known to be the common practice for the owners of motorcars to
insure themselves against all risks in connection with the car ... "
And in Davis v. Pearce Parking Station Pty Ltd. 101 where the ques-
tion was whether a provision in a contract to park a car at a parking
station that cars were "garaged at the owner's risk" excluded
liability for negligence, the Court noted that the defendant bailee
was making a very small charge for taking custody of valuable
goods. He was likely to intend and be expected by the bailor to
intend to protect himself against a possibly very heavy liability aris-
ing from the negligence of a servant. Either party, it was said, can
insure, and such a clause may reasonably be taken by the bailor to
mean that, if he wishes to be protected against loss or damage at
all, he must insure. 102
References to the insurance factor have become increasingly
common more recently. 103 It seems the view is taken that it is
legitimate to consider whether the parties are or should be insured,
and what type of insurance is most common and economical in the
circumstances. The parties' intention with respect to the scope of
an exemption is to be determined in the light of their presumed
knowledge of these matters. It is clear that this recognition of the
relevance of insurance to the construction of protective provisions
in contracts is capable of conflicting with the rule or presumption
embodied in the Canada Steamship guidelines.
The latter advocates a construction contra proferentem while
consideration of the insurance position would often promote a con-
struction favourable to the proferens.
(iv) Breaches more serious than negligence

It is worth distinguishing a different type of situation from that
which we are considering here. The present rule is concerned with
99. [1922] 2 K.B.87.

100. Ibid. at 90.
101. (1954) 91 C.L.R. 643.
102. Ibid at 652.
103. Photo Production Ltd v. Securicor Transport Ltd [1980] A.C. 827 at 851
(Lord Diplock), [1978] 3 All E.R. 146 at 154 (Lord Denning M.R.); Ailsa
Craig Fishing Co Ltdv. Malvern Fishing Co Ltd [1983] 1 All E.R. 101 at 103,
1 W.L.R. 964 at 966; Bright v. Sampson & Duncan Enterprises Pty Ltd
[1985] 1 N.S.W.L.R. 346 at 366 (Mahoney l.A.); Life Savers (Australasia)
Ltd v. Frigmobile Pty Ltd [1983] 1 N.S.W.L.R. 431 at 436 (Hutley l.A.);
George Mitchell (Chesterhall) Ltd v. Finney Lock Seed [1983] 2 A.C. 803 at
817 (Lord Bridge), [1983] 1 Q.B. 284 at 299, 302 (Lord Denning M.R.), 307
(Oliver L.l.); Scottish Special Housing Association v. Wimpey Construction
U.K. Ltd. [1986] 1 W.L.R. 995. B. Coote, "The Effect of Discharge by
Breach on Exception Clauses" [1970] Cambridge L.J. 221 at 240 believes that
it is proper for courts to distinguish transactions commonly or not commonly
the subject of insurance cover.
176 Jane Swanton
the question whether an exclusion is intended to apply to fault-

based liability at all. But another issue that can arise is whether,
even if a clause does expressly or impliedly extend to negligence, it
goes further and gives protection also against a 'higher' form of
liability or 'worse' type of fault. Thus the question may be whether
it applies to wilful or malicious damage,l04 fundamental breach,105
'deviation' from the terms of a bailment,l06 breach of a statutory
duty to take safety precautions 107 or negligent breach of a strict
contractual warranty.108 Whether it does so is a matter of construc-
tion and clear words are of course required. Rules of construction
described variously as the "four corners" rule, the 'deviation' prin-
cipal, the "main purpose" rule, the "total breach" rule and the doc- .
trine of 'fundamental breach' may be usefully invoked. But there is
no rule that because a clause clearly covers negligence it should not
be considered to extend to other types of fault such as wilful wrong-
doing. The argument that there is such a rule was said in Photo
Production Ltd v. Securicor Transport Ltd. 109 to be "a perversion
of the rule that if a clause can cover something other than
negligence, it will not be applied to negligence".
(v) Rule not to be used so as to favour the proferens

Another "perversion" of the rule would occur if it wer€! allowed to
work in favour oftheproferens. The rule is said to be a corollary of
the contra pro/erentem rule. Thus an attempt to use it in such a way
as to assist the pro/erens must be an incorrect application. Take a
situation where liability could arise in tort or contract, but the con-
tractual duty is stricter, as is (or may be) the case with respect to an
occupier's duty to a contractual entrant. It is specious to argue
that, because the plaintiff chose to sue in contract rather than in
negligence, the third guideline in Canada Steamship means that the
exclusion clause bars the contractual claim. This would be a literal
and mechanical application of the rule and would operate to defeat
its spirit .110
(vi) Indemnity clauses

It is clear that the rules in Canada Steamship Lines Ltd v. The
104. Photo Production Ltd v. Securicor Transport Ltd [1980) A.C. 827.
105. Levison v. Patent Steam Carpet Cleaning Co Ltd (1978) Q.B. 69.
106. Sydney City Council v. West (1965) 114 C.L.R. 481; Thomas National
Transport (Melbourne) Pty Ltd. v. May & Baker (Australia) Pty Ltd (1966)
115 C.L.R. 353; Crouch v. Jeeves (1938) Pty Ltd (1946) 46 S.R. (N.S.W.) 242
per Jordan C.J. at 245.
107. Hawkes Bay & East Coast Aero Club Inc. v. McLeod [1972) N.Z.L.R. 289
per Turner J.; B. Coote [1972) Cambridge L.J. 53.
108. The Raphael [1982) 2 Lloyd's Rep. 42 per Donaldson, L.J. at 45, referring to
Gilroy v. Price [1893] A.C. 56.
109. (1980) A.C. 827 per Lord Wilberforce at 846.
110. Bright v. Sampson & Duncan Enterprises Pty Ltd [1985) per Mahoney J.A.
at 367-8.
King 111 apply mutatis mutandis to indemnity as well as exemption

clauses. 112 It has been pointed out 113 that indemnity clauses are of
two basic types. An indemnity provision may require a contracting
party to indemnify the other if the latter becomes liable to the
former. This type of provision has been described as a "reflexive"
indemnity clause and may be correctly regarded as the "obverse" 114
of an exemption clause. It was argued (unsuccessfully) that a provi-
sion in the contract in the Canada Steamship case1I5 was of this
type. But more commonly an indemnity provision will be intended
to cast the burden of one party's liability towards a third party on
to the other contracting party. This type of clause has been
described 116 as an 'i~surance' indemnity clause.
It has been said to be just as "inherently improbable" that one
party would agree to discharge the other's liability towards third
parties for the latter's negligence as that he should intend to absolve
the other from liability towards himself for negligence. 117 Therefore
the rationale of the rule of construction which we are considering
extends to indemnity provisions. Some judges have gone further
and expressed the opinion that the rule applies a jortiori to indem-
nity clauses since they are less usual and more extreme. Thus it has
been said that the projerens has an even heavier burden to
discharge in establishing that provisions of this type extend to
negligence. lIS It should be added that this latter view is not univer-
111. [1952] A.C. 192.

112. Canada Steamship Lines Ltd v. The King [1952] A.C. 192 at 213; Smith v.
South Wales Switchgear Co Ltd [1978] 1 W.L.R. 165 at 167 (Viscount
Dilhorne), 172 (Lord Fraser); Gillespie Bros & Co Ltd v. Roy Bowles
Transport Ltd [1973] 1 Q.B. 400; British Crane Hire Corporation Ltd v.
Ipswich Plant Hire Ltd [1975] 1 Q.B. 303 at 311 (Lord Denning M.R.); Davis
v. Commissioner of Main Roads (N.S. W.) (1967) 117 C.L.R. 529 at 536-7
(Menzies J.); AMF International Ltd v. Magnet Bowling Ltd [1968] 1
W.L.R. 1028; North of Scotland Hydro-Electric Board v. D & R Taylor
[1956] S.C. I. There is some difference of opinion as to whether clauses in
which parties define between themselves who is to be vicariously responsible
for the acts of another are to be regarded as exception or indemnity clauses
and subject to the Canada Steamship rules: Arthur White (Contractors) Ltd
v. Tarmac Civil Engineering Ltd [1967] 1 W.L.R. 1508; Thompson v. T.
Lohan (Plant Hire) Ltd [1987] 1 W.L.R. 649; Phillips Products Ltd. v. Hyland
[1987] 1 W.L.R. 659; J. Adams & R. Brownsword, "Contractual Indemnity
Clauses" [1982] J .Bus.Law 200 at 205-7.
113. Adams & Brownsword, op.cit., n.112, ante.
114. This term is used in Smith v. South Wales Switchgear Co Ltd [1978]
W.L.R. 165 by Viscount Dilhorne at 168 and Lord Fraser at 172.
115. [1952] A.C. 192 at 211-4.
116. Adams & Brownsword, Ope cit. n.112, ante.
117. Gillespie Bros & Co. Ltdv. Roy Bowles Transport Ltd [1973] 1 Q.B. 400per
Buckley L.J. at 419-20.
118. Canada Steamship Lines Ltd v. The King [1952] A.C. 192 at 211 (semble);
Smith v. South Wales Switchgear Co. Ltd [1978] 1 W.L.R. 165 at 168
(Viscount Dilhorne), 178 (Lord Keith). The fact that if the clause does not
apply to negligence it confers no added protection to that afforded by the
common law is no argument against such a construction: Smith v. South
Wales Switchgear Co. Ltd [1978] 1 W.L.R. 165 at 174 (Lord Fraser), 179
(Lord Keith).
178 Jane Swanton
sally shared by'judges. 119 Nor is the strict construction approach in-
variably taken in all circumstances. In some cases the courts have
shown themselves prepared to look behind the prima facie injustice
of a provision in which one party agrees to discharge another's
liability, at the relationship of the parties and the insurance pos-
ition. Taking these matters into account the risk allocation effected
by the clause may not be unreasonable and an intention for it to
apply to fault-based liability may be more readily inferred. 120
(vii) Time-bar clauses

The question arises whether the rule of construction which we are
considering has any application to time-bar clauses. The High
Court of Australia in Commissioner for Railways v. Quinn 121 and
the Privy Council in Port Jackson Stevedoring Pty Ltd v. Salmond
& Spraggon (Australia) Pty Ltd 122 seemed to think that the rule has
no role to play with respect to clauses of this type. Such provisions
are presumed to be intended to operate on all claims of whatever
nature and normally would not admit of the interpretation that
claims based upon negligence are beyond their reach.
(viii) Negligence in tort or contract

Does the reference to 'negligence' in the rule of construction with
which we are dealing mean tortious negligence or contractual
negligence? In some of the cases it seems that it is taken to refer to
tortious negligence. Thus in White v. John Warwick & Co Ltd. 123
the owner of a carrier tricycle which was hired out to the plaintiff
was considered to owe a strict contractual duty with respect to the
condition of the machine, and also a duty of care in tort. A
provision in the contract of hire that the owner was not to be liable
119. In Gillespie Bros & Co. Ltd v. Roy Bowles Transport Ltd [1973] 1 Q.B. 400
at 420 Buckley L.J. said that an "exactly parallel inherent improbability
arises in respect of an indemnity as in respect of an exemption". N.E.
Palmer, "Negligence and Exclusion Clauses Again" (1983) Lloyd's Mar &
Com. Law 557 at 567 considered that Stephenson L.J. in The Raphael [1982]
Lloyd's Rep. 42 at 50, 51 implied that exclusion and indemnity clauses should
be treated in the same way. Adams & Brownsword, Ope cit., n. 112 ante see
"two competing approaches" (at 205).
120. Gillespie Bros & Co. Ltdv. Roy Bowles Transport Ltd [1973] 1 Q.B. 400per
Lord Denning M.R. at 416-7; Westcott v. J.H. Jenner (Plasterers) Ltd.
[1962] 1 Lloyd's Rep. 309; Arthur White (Contractors) Ltd v. Tarmac Civil
Engineering Ltd [1967] 1 W.L.R. 1508 per Lord Morris at 1516, Lord
Pearson at 1529; Adams & Brownsword,op.cit. n.112, ante at 207-9; cf
Menzies J. in Davis v. Commissioner for Main Roads (N.S. W.) (1967) 117
C.L.R. 529 at 537 who considered that application of the clause to negligence
produced hardship despite a provision requiring the indemnifying party to
take out insurance cover.
121. [1945] 72 C.L.R. 345 at 365 (Starke J.), 372 (Dixon J.), 385 (Williams J.).
122. [1980] 54A.L.J.R. 552 at 555.
123. [1953] 1 W.L.R. 1285. W. Howarth, "Some Common Law Limitations to
the Construction of Contractual Exclusion Clauses" (1985) 36 N. Ire. L.Q.
101 at 116-7 queries why it is that, since tortious duties are fixed by law,
contractual exclusion of tortious liability is permissible.
for any personal injuries to riders of the machine was construed as

applying to the former duty only.124
However, in other cases where the rule has been applied, no
liability in the tort of negligence would arise. An example is George
Mitchell (Chesterhall) Ltd v. Finney Lock Seeds Ltd 125 where the
complaint was that seed supplied to the plaintiff farmer by the
defendant seed merchant was not the kind of seed stipulated in the
contract. The resulting crop was commercially worthless to· the
plaintiff who sought damages for his lost profits. Oliver & Kerr
L.JJ. in the Court of Appeal thought that one reason why the
. defendant's limitation clause would not protect him was that the
defendant was negligent in supplying the wrong kind of seed. 126
Clearly negligence in this type of situation would not give rise to
liability in tort. Nor does it seem sensible to describe the breach as
contractual negligence or breach of a contractual duty of care. The
contractual duty was a strict one to supply merchantable seed of the
kind described in the contract. As a factual matter, of course, this
duty was capable of being broken innocently or negligently. Thus
the result of applying the rule of construction here was that the
limitation clause did not apply to negligent breaches of the strict
contractual duty to supply goods which were merchantable and of
the description required by the contract.
In other circumstances the 'negligence' referred to in the rule
clearly does include breach of a contractual duty of care. Thus
when it is said that "if the only liability of the party pleading the
exemption is a liability for negligence, the clause will more readily
operate to exempt him" ,127 the reference is obviously to breach of a
contractual duty of care. In this type of situation it is often the case
that there will co-exist with the contractual duty, an identical duty
sounding in the tort of negligence.
It has been said however that if an exemption is wide enough to
cover contractual negligence it must also cover liability for breach
of a duty in tort which is co-extensive with the contractual duty.128
This is the meaning of the often-quoted dictum of Scrutton L.J.
124. D.W. Greig & J.L.R. Davis, The Law of Contract (1987), p. 634 consider
that this was only one basis of the decision; see also [1954] 17 Mod.L.Rev 155
at 157.
125. [1983] 1 Q.B. 284 (C.A.), [1983] 2 A.C. 803 (H.L.).
126. Ibid. at 306, 312-3; Oliver L.J. thought that the clause would not apply in
any event, whether or not there was negligence, since there was a failure to
fulfil the primary obligation of the contract. In the House of Lords it was
said that as the provision was a limitation clause, not a total exclusion, the
rule of construction had no application: [1983] 2 A.C. 803 at 814 (Lord
Bridge).
127. Rutterv. Palmer [1922] 2 K.B. 87 perScrutton L.J. at 92.
128. The Raphael [1982] 2 Lloyd's Rep. 42 per Donaldson L.J. at 46; B. Coote,
Exception Clauses (1964) p.35; D.W. Greig & J.L.R. Davis, The Law of
Contract (1987) pp. 633-4; N.E. Palmer, "Negligence and Exclusion clauses
Again" (1983) Lloyd's Mar. & Com. Law 557 at 563-4; [1954] 17 Mod. L.
Rev 155 at 157. But if the contractual and the tortious duty of care apply to
different species of negligence, or negligence in different respects, the
exemption may be construed as applying only to the contractual duty: Bright
v. Sampson & Duncan Enterprises Pty. Ltd. [1985] 1 N.S.W.L.R. 346per
Samuels J .A. at 359-60.
180 Jane Swanton
that "where the defendant has protection under a contract, it is not

permissible to disregard the contract and allege a wider liability in
tort" .129
(ix) .Different forms ofnegligence

It seems to be accepted that the spirit, if not the letter, of the third
guideline in Canada Steamship Lines Ltd v. The King 130 is
applicable even where, though negligence is the only or main
ground of liability, negligence on the part of the proferens may
take different forms. A clause may be taken to refer only to
negligence in certain respects and not in others. 131 Thus in Canada
Steamship itself it was said that the protective provisions did not
apply to negligence of the kind in question, namely, negligence in
carrying out a contractual obligation to repair .132 In another case 133
a provision was construed as excluding liability for negligence as a
bailee in keeping custody of goods, but not negligence in the
appointment of staff. A further illustration is a case 134 in which it
was held that while the exemption might exclude liability for
negligence in supervising skaters at a skating rink, it did not apply
to negligence with respect to the physical structure of the premises.
It will be prudent therefore for the draftsman of an exemption
clause which is intended to extend to liability for negligence
generally, not only to use the word "negligence", but to follow it by
some phrase such as "in any respect" or "of whatever type" or "in
any circumstances whatever". If it is intended to accept
responsibility for negligence in certain matters only, but not in
others, specific reference to those forms of negligence may be held
inferentially to exclude liability for other types. 135
(x) Non-Contractual Exempting Provisions

Not infrequently it is sought to exclude liability which would other-
wise arise in tort, by means of a notice or some form of documen-
tation which does not form part of a contract between the
parties. 136 Thus an occupier of premises may seek in this way to ex-
129. Hallv. Brooklands Auto Racing Club [1933] 1 K.B. 205 at 213; Gallaher Ltd.
v. BRS Ltd. [1974] 2 Lloyd's Rep. 440 at 448; D. Yates, Exclusion Clauses in
Contracts (2nd ed., 1982) p. 141.
130. [1952] A.C. 192 at 208.
131. Hawkes Bay & East Coast Aero Club Inc. v. McLeod (1972] N.Z.L.R. 289
per Turner J. at 301; B. Coote [1972] Cambridge L.J. 53 at 55; cf Davis v.
Commissioner for Main Roads (N.S. W.) (1967) 117 C.L.R. 529 at 537 where
Menzies J said that there was' 'no sound ground for limiting the indemnity to
particular breaches of the duty of care" .
132. [1952] A.C. 192 at 210.
133. Williams v. Curzon Syndicate Ltd. (1919) 35 T .L.R. 475.
134. Bright v. Sampson & Duncan Enterprises Pty. Ltd [1985] 1 N.S.W.L.R. 346
especially at 359-60 (Samuels J.A.), 367-8 (Mahoney J.A.).
135. The Go/den Leader [1980] 2 Lloyd's Rep. 573.
136. The case law is examined by N.C. Seddon, "Fault without Liability -
Exemption Clauses in Tort" (1981) 55 A.L.J. 22; A.P. Dobson, "Non-
Contractual Exclusion Clauses" (1974) 124 New L.J. 249,273.
clude his liability towards a licensee,137 or a bank may disclaim any

responsibility when giving a credit reference in respect of a
customer .138 Such exclusions may sometimes operate so as to give
rise to the defence of volenti non fit injuria, but it seems that the
circumstances where they are effective cannot always be analysed in
terms of that defence. This is because actual knowledge of the
exclusion, let alone the inference of an intent to waive the defen-
dant's duty of care, are not necessary requirements. 139 It seems that
the rules of construction which apply to contractual exclusion
clauses, including the rule presently under consideration, apply also
to these non-contractual exempting provisions. l40
(xi) Clauses other than exemption or indemnity provisions

It seems that the rule of construction can apply to clauses other
than exemption or indemnity provisions. In Sonat Offshore SA v.
Amerada Hess Development Ltd. 141 the question was whether a
contractor which failed, because of its own negligence, to pro-
vide services for its employers was entitled to recover remunera-
tion. The contractor was entitled to payment at a specified rate per
day for the supply and operation of oil drilling equipment. The
agreement provided for different rates of payment where the rig
was not operational by reason of equipment breakdown. The Court
of Appeal held that, in the absence of an express statement to this
effect, the latter provision was not intended to apply where the
breakdown was due to the contractor's own negligence or wilful
default. The application of the reasoning underlying Lord
Morton's third guideline in Canada Steamship Lines Ltd. v. The
King 142 led the Court to adopt this construction.
Conclusion
There is no reason to doubt that there still exists in English and

Australian law a rule of construction that an exemption clause
which is expressed in general terms will be presumed not to be
intended to apply to liability for negligence, and that in Australia,
though not in England, the rule applies to clauses of limitation and
of total exclusion alike. However, the need for such a rule has been
diminished, if not banished, in England, by the enactment of the
Unfair Contract Terms Act 1977.
Exposition of the rule in Canada Steamship Lines Ltd. v. The
King 143 in the form of three propositions may have done a disser-
137. Ashdown v. Samuel Williams & Sons Ltd. [1957] 1 Q.B. 409.
138. Hedley Bryne & Co. Ltd v. Heller & Partners Ltd. [1964] A.C. 465.
139. Seddon, op.cit. n.136, ante at 24.
140. Smith v. Eric S. Bush [1987] 3 W.L.R. 889 at 895 (Dillon L.J .), 898
(Glidewell L.l.); Bright v. Sampson & Duncan Enterprises Pty Ltd [1985] 1
N.S.W.L.R. 346 at 359 (Samuels l.A.); White v. Blackmore [1972] 2 Q.B.
651; Seddon, op.cit n.136, ante at 25.
141. [1987] 2 F.T.L.R. 220.
142. [1952] A.C. 192 at 208.
143. Ibid.
182 Jane Swanton
vice to the law in giving the impression that the tests are to be
applied mechanically and inflexibly, thereby causing some com-
mentators 144 to doubt the value of retaining such a rule. The
criticism that the rule is too rigid can be met however if it is
remembered that it is a rule of construction only, not a rule of law,
and that it must yield if its application would defeat the intention of
the parties or distort the plain meaning of the words used. The rule
should be regarded only as a common sense corollary of the contra
projerentem rule and a rational deduction from the assumption
that for the most part, when entering a contract, the parties are
contemplating non-negligent rather than negligent performance. It
remains a useful weapon which can be employed by the courts, in
an appropriate case, to give relief against the unfair. effects of
exemptions from liability in jurisdictions where there is no legisla-
tion enabling them to strike down such provisions on the ground of
unreasonableness.
So long as the rule is applied with flexibility it should not operate
to defeat commercially reasonable arrangements. The courts have
shown greater readiness lately to give consideration to whether, in
the light of the relationship between the parties and the insurance
position, an exclusion of liability for negligence might make com-
mercial sense, and therefore accord with the parties' presumed
intention. Despite this, the unpredictability of judicial reactions in
many circumstances means that it remains vital that a party who
wishes to exclude liability for negligence should say so in so many
words in his documentation. However unpalatable he may find it a
projerens should be advised that there is no substitute for disclaim-
ing liability for negligence expressly. Additionally, if it is intended
that the exclusion is to apply to negligence in every facet of perfor-
mance of the contract, words to that effect should be added.
144. N.E. Palmer (1982) 45 Mod. L. Rev 322 at 328 and "Negligence and
Exclusion Clauses Again" (1983) Lloyd's Mar. & Com. Law 557 at 573; K.E.
Lindgren, l.W. Carter & D.l. Harland, Contract Law in Australia (1986) p.
227.

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The University of Queensland Law Journal Vol. 15 No.

Exclusion of Liability for Negligence

Contracting parties often seem reluctant to make express reference

Formulations ofthe rule

It is convenient to set out the leading formulations of the rule,

*Senior Lecturer in Law, University of Sydney.

In Alderslade v. Hendon Laundry Ltd Lord Greene M.R. said: 3

3. [1945] 1 K.B. 189 at 192.

The rule is often described as a corollary of the contra profer-

6. Verba chartarum fortius accipuntur contra proferentem .- literally, "the

alleviate the unjust effect of exemption clauses, including the one

Further judicial interpretation oftheformulations.

Several developments should be noted:

(1) The first guideline l2 in Canada Steamship Lines Ltd v The

(2) The second guideline in Canada Steamship Lines Ltd v. The

dent value so far as other contracts are concerned. Judges have

(3) The third guideline in Canada Steamship Lines Ltd v. The

The relevance of the existence of another head of liability is, of

37. N.E. Palmer, Bailment (1979), p. 927.

viewed with hostility, especially in commercial contracts which

the 'natural and ordinary meaning' approach to the construction of

(4) Where negligence is the only liability.

"where the head of damage in respect of which limitation of liab-

Greene M.R. in Alderslade v. Hendon Laundry Ltd. 57 A protective

(5) Limitation Clauses

57. [1945] 1 K.B. 189 at 192.

Lord Fraser said: 63

described as totally far fetched and fantastic, but simply those to

First, it is pointed out that a limitation clause may be so restrictive

The scope and operation ofthe rule

i) Construction ofthe contract as a whole

(ii) Status and relationship ofthe parties

tract is a consumer or commercial one, whether the parties are deal-

found. Thus in Rutter v. Palmer 99 the question was whether a pro-

(iv) Breaches more serious than negligence

99. [1922] 2 K.B.87.

the question whether an exclusion is intended to apply to fault-

(v) Rule not to be used so as to favour the proferens

(vi) Indemnity clauses

King 111 apply mutatis mutandis to indemnity as well as exemption

111. [1952] A.C. 192.

(vii) Time-bar clauses

(viii) Negligence in tort or contract

for any personal injuries to riders of the machine was construed as

that "where the defendant has protection under a contract, it is not

(ix) .Different forms ofnegligence

(x) Non-Contractual Exempting Provisions

clude his liability towards a licensee,137 or a bank may disclaim any

(xi) Clauses other than exemption or indemnity provisions

There is no reason to doubt that there still exists in English and

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