Exemption Clauses in Standard Form Contracts
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EXEMPTION CLAUSES IN STANDARD FORM CONTRACTS Dissertation submitted in part fulfillment for the requirement of the Degree of LL.M Submitted by Supervised by AISHWARYA SINGH DR. RISHAM GARG NATIONAL LAW UNIVERSITY DELHI (INDIA) 2016 1 DECLARATION BY THE CANDIDATE I hereby declare that the dissertation entitled “Exemption Clauses in Standard Form Contracts” submitted at National Law University, Delhi is the outcome of my own work carried out under the supervision of Dr. Risham Garg, Assistant Professor, National Law University, Delhi. I further declare that to the best of my knowledge, the dissertation does not contain any part of work, which has not been submitted for the award of any degree either in this University or in any other institution without proper citation. Aishwarya Singh Roll No. 01 LLM 15 National Law University, Delhi New Delhi May 30, 2016 2 CERTIFICATE OF SUPERVISOR This is to certify that the work reported in the LL.M dissertation entitled “Exemption Clauses in Standard Form Contracts” submitted by Aishwarya Singh at National Law University, Delhi is a bona fide record of his original work carried out under my supervision. To the best of my knowledge and belief, the dissertation: (i) embodied the work of candidate himself; (ii) has been duly completed; and (iii) is up to the standard, both in respect of content and language, for being referred to the examiner. Dr. Risham Garg Assistant Professor, National Law University, Delhi New Delhi May 30, 2016 3 ACKNOWLEDGMENT I would like to express my sincerest gratitude to my supervisor, Dr. Risham Garg, whose consistent guidance, support and patience kept me motivated throughout the dissertation writing process and helped make this dissertation a reality. I would also like to express my gratefulness to Professor Stefan Vogenauer, interactions with whom during his course on “Comparative Contract Law and Practice” helped in having an international perspective on the use of standard terms and their treatment, along with other general aspects of contract law. Gratitude is also owed to Prof B.T Kaul, whose lecture on labor employment contracts was enlightening with respect to unfairness in labor employment contracts that are by and large Standard Form Contracts. A heartfelt thank you to the library staff of NLUD is also expressed. 4 ABBREVIATIONS & And AIR All India Reports Anr. Another ed(s.) Editors edn. Edition et. al. and others Id Idem i.e. That is J Journal No. Number Ors. Others p. Page pp. Pages SC Supreme Court SCC Supreme Court Cases Supra See above UCTA Unfair Contract Terms Act UTCCR Unfair Terms in Consumer Contract Regulation v. Versus Vol. Volume 5 LIST OF STATUTES COMPETITION ACT, 2002 CONSUMER PROTECTION ACT CONTRACT ACT, 1872 SALE OF GOODS ACT, 1930 SPECIFIC RELIEF ACT, 1963 6 LIST OF CASES 1. A.K. Ummat, Managing Director, Aptech Computer Education Centre, Chandigarh v. Barinder Pal Singh (1998) 2 CLT 152 (UT) 2. Ailsa Craig Fishing Co. Ltd. v Malvern Fishing Co Ltd (1983) 1 WLR 964. 3. Alderslade v Hendon Laundry Ltd. [1944] 1 K.B. 189, 192. 4. B.V. Nagaraju v. M/s Oriental Insurance Co. Ltd., Divisional Officer, Hassan AIR 1996 SC 2054. 5. British Crane Hire Corp Ltd v Ipswich Plant Hire Ltd (1975) Q.B. 303. 6. Brooke Bond Lipton (I) Ltd. v. Desh Deepak, 1999 (2) CPJ 603 7. Canada Steamship Lines Ltd v The King [1952] A.C. 192. 8. Chapelton v Barry UDC 1940 1 KB 532. 9. Curtis v Chemical Cleaning & Dyeing Co. [1951] 1 KB 805. 10. Hollier v Rambler Motors [1972] 2Q.B. 71. 11. Interfoto v Stiletto Visual Programmes [1989] 1 QB 433. 12. J Spurling Ltd v Bradshaw [1956] 1 W.L.R. 461 13. L’Estrange v Graucob [1934] 2 KB 394 14. Lamport& Holt Lines Ltd v Coubro & Scrutton (M. & I.)Ltd.[1982] 2 Lloyd’s Rep. 42,50 15. Lee(John) &Son (Grantham) Ltd v Railway Executive [1949] 2 ALL ER 581 16. Olley v Marlborough Court Ltd [1949] 1 K.B. 532 17. Parker v South Eastern Railway Co. [1877] 2 CPD 416 18. Rutter v Palmer[1922] 2 KB 87,92 7 19. Schroeder Music Publishing Co. V. Macaulay [1974] 1 WLR 1308 20. Skandia Insurance Co. Ltd. v Kokilaben Chandravadan 1987 2 SCC 654 21. Suisse Atlantique Societed’ Armement Maritime SA v. N.V. Rotterdamsche Kole Centrale [1967] 1 A.C. 361, 482 22. The Central Inland Water Transport Corporation Limited v. Brojo Nath Ganguly AIR 1986 SC 1571. 23. Thornton v Shoe Lane Parking [1971] 2 QB 163 8 TABLE OF CONTENTS S. No PAGE TITLE NO. COVER PAGE Declaration by the Candidate i Certificate of Supervisor ii Acknowledgment iii List of Acronyms and Abbreviations iv List of Statutes v List of Cases vi – vii CHAPTER 1 INTRODUCTION 1 – 11 1.1 INTRODUCTION 1 – 5 1.2 REVIEW OF LITERATURE 5 – 8 1.3 STATEMENT OF PROBLEM 8 – 9 1.4 OBJECTIVES 10 1.5 SCOPE OF STUDY 10 1.6 HYPOTHESES 10 1.7 RESEARCH METHODOLOGY 11 1.8 CHAPTERIZATION 11 CHAPTER 2 EVOLUTION OF LAW OF CONTRCATS 12 – 29 AND PLACEMENT OF STANDARD FORM CONTRACTS IN ITS FUTURE 2.1 INTRODUCTION 12 – 13 2.2 THE REALM OF CONTRACT LAW 13 – 18 9 2.3 STANDARD FORM CONTRACTS IN LIGHT OF 19 – 25 THE CLASSICAL AND MODERN CONTRACTUAL THEORIES 2.4 INDISPENSABILITY OF CONTRACT LAW 25 – 29 2.5 CONCLUSION 29 CHAPTER 3 Standard Form Contracts 30 – 43 3.1 INTRODUCTION 30 – 31 3.2 STANDARD FORM CONTRACTS: MEANING 31 – 33 3.3 ADVANTAGES OF STANDARD FORM 33 – 34 CONTRACTS 3.4 DISADVANTAGES AND DRAWBACKS OF 34 – 37 STANDARD FORM CONTRACTS 3.5 TOWARDS BETTERING STANDARD FORM 37 – 44 CONTRACTS 3.6 CONCLUSION 45 CHAPTER 4 EXCLUSION CLAUSES 46 – 61 4.1 INTRODUCTION 46 4.2 EXEMPTION CLAUSE 46 – 47 4.3 JUDICIAL TREATMENT 48 – 6 4.3.1 Incorporation of Exemption Clauses 48 – 54 4.3.2 Interpretation of Exemption Clauses 55 – 64 4.4 CONCLUSION 64 CHAPTER 5 ATTEMPTS IN INDIA AT TREATING 65 – 73 UNFAIRNESS IN CONTRACTS 10 5.1 INTRODUCTION 65 – 67 5.2 13TH LAW COMMISSION REPORT 67 – 68 5.3 97TH LAW COMMISSION REPORT 68 – 71 5.4 103RD LAW COMMISSION REPORT 71 – 76 5.5 CONCLUSION 76 – 77 CHAPTER 6 TREATING PROCEDURAL AND 78 - SUBSTANTIVE UNFAIRNESS IN CONTRACTUAL TERMS 6.1 INTRODUCTION: 199TH LAW COMMISSION 78 REPORT 6.2 CRUX OF THE REPORT 78 – 79 6.3 CLASSICAL TAKE ON UNFAIRNESS AND 80 – 81 CONTRACTS 6.4 NEED TO CLASSIFY UNFAIRNESS INTO 81 – 82 PROCEDURAL UNFAIRNESS AND SUBSTANTIVE UNFAIRNESS 6.5 PROCEDURAL UNFAIRNESS AND 82 – 85 SUBSTANTIVE UNFAIRNESS IN CONTRACTS 6.6 FILLING THE GAPS 86 6.7 UNFAIR TERMS AND INDIAN COURTS 86 – 88 6.8 PRESENT SITUATION IN INDIA 88 – 89 6.9 CONCLUSION 89 CHAPTER 7 CONCLUSION 90 – 93 BIBLIOGRAPHY viii – x Annexure 1 xi – xix 11 CHAPTER 1 INTRODUCTION 1.1 Background The establishment of civilized human society, marked with the coming into existence of the institution of State is premised on a “contract”, entered into between the Man and the State.1 Hence “contract” forms the very bedrock of human society. The importance of “contracts” has only increased overtime in both public and private life. With the march of society from status to contract,2 enhanced formality in human transactions and needs of industrial society, the nature of “contracts” has undergone multifold changes. The changes sometime seem so fundamental that the very foundations established by the classical theory of contacts seem to be jeopardized. While on the other hand, the change appears to be quite amenable to the existing understanding, defining the realm of contract law. All this leads to one conclusion if nothing else. The conclusion being that there needs to be an acceptance that contracts of yesteryear have undergone a change in both their nature and role. The modern day contract hence needs a modified understanding and treatment. The changes advocated by the Law Commission in its 199th Report, asking to deal with unfairness in contracts, by providing express provisions, treating substantive and procedural unfairness separately, is a recognition of the same. In the era of specialization there has been a resultant standardization of contracts. By “standardization of contract”, it is not meant that they have lost their specificity in terms of applicability to contractual parties, rather what is meant is that their characteristic feature of being tailor-made, to suit needs of contracting parties, has been taken over by their new characteristic feature of “one-size-fits-all” model. This generalization of the contractual content, is highly specific in terms of the conditions and exclusions sought to be achieved by the drafting part but general in the sense that it is imposed upon all that 1 See, JEAN-JACQUES ROUSSEAU, THE SOCIAL CONTRACT: & DISCOURSES (JM Dent & Sons 1920). See also, PATRICK RILEY, WILL AND POLITICAL LEGITIMACY: A CRITICAL EXPOSITION OF SOCIAL CONTRACT THEORY IN HOBBES, LOCKE, ROUSSEAU, KANT, AND HEGEL (iUniverse 1999). 2 Henry S. Maine, From Status to Contract, ANC. LAW (1861). 12 enter this standardized contract. The difference in any of two such contracts is limited only to the extent of the name of the parties. Hence the personalized characteristic of contracts is given a go by. This standardization is achieved by what have come to be ubiquitously known was Standard Form Contracts.3 The arrival of Standard Form Contracts in the Indian market scene, with a clear comprehension of their nature and potential, was acknowledged well in the 103rd Law Commission Report in the following words: “The standardized contracts are really pretended contracts that have only the name of contract.