Discuss the significance of the decision in the case of olley v marlborough court hotel ltd to the development of the law on exclusion clauses in contracts.

An important point to remember is that not everything that is said at the negotiation or formation stage subsequently becomes incorporated into the contract.

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This essay looks in detail at the case of Olley v Marlborough Court Hotel Ltd (1949).

The decision reached by the court is examined and the reasoning behind the decision is looked at, as are the steps that could have been taken to have remedied the factors affecting the decision of the court.

Also mentioned are Chapelton v Barry UDC (1940) and Thompson v London Midland and Scottish Railway (1930).

The effect of The Unfair Contract Terms Act 1977 and The Unfair Terms in Consumer Contracts Regulations 1999 is also explained.

The essay lends itself to development according to individual needs.


(Word count 1631)


Discuss the significance of the decision in the case of Olley v Marlborough Court Hotel Ltd to the development of the law on exclusion clauses in contracts.


An important point to remember is that not everything that is said at the negotiation or formation stage subsequently becomes incorporated into the contract. It is essential that the parties know the terms on which they have contracted therefore it is necessary to understand the approach taken by the courts regarding how representations become incorporated as part of the contract.


With this in mind it is also crucial to know something about the nature of terms. In effect, contractual terms are legally binding and enforceable obligations. The parties to the contract agree to perform these obligations in order to discharge the contract and honour the bargain struck. This may be critical because, in the event of a parties' failure to comply with their obligations, a breach of contract arises and this amounts to a potential cause of action.


It is not surprising that issues regarding whether or not a term has been properly incorporated into the contract have come before the courts. It is easy to see why this area may be a source of disputes between contracting parties.


If we turn to the rules adopted by the courts we will find that prior to the contract being concluded there may be various statements of fact or representations made by the potential parties. In reality not all of these representations will form part of the contract and become contract terms. The task of determining the true nature of the contract may be made easier in cases where the contract is in writing. Many law students will have heard of the potential problems that can arise from verbal contracts which are not evidenced in writing.


As a result of these disputes the courts have established a number of rules to determine whether a representation can properly be considered to be part of the contract.


The courts have taken the firm view that any party subject to any statement or representation must be aware of it prior to entry into the contract. This point is extremely well illustrated by the leading case of Olley v Marlborough Court Hotel Ltd (1949). Mrs Olley was a customer of the Marlborough Court Hotel and in fact she was a long staying resident. When leaving the hotel Mrs Olley made a practice of leaving her room key at reception. One day Mrs Olley returned to her room to find that her fur coat had been stolen. She sought to be repaid for the coat but the company pointed to a notice disclaiming liability for lost or stolen items unless they had been left with a senior representative.


Mrs Olley disputed that the disclaimer formed part of the contract. The Court of Appeal agreed reasoning that the contract would have been made at reception in the Hotel but that the notice was not displayed there but on the rear of a door in the bedroom. The court decided that the notice could not be incorporated into the contract as Mrs Olley did not have notice of it at the time.

The crucial point in this case was that the exclusion clause could have been explained to Mrs Olley when she signed into the hotel but it was not. Mrs Olley did suffer a loss but the exclusion clause was posted on the bedroom door. The main issue for the court was whether the clause, contained in the notice on the back of the bedroom door, formed part of the contract.


The court ruled that it was not part of the contract on the basis that Mrs Olley, against whom the term was, had not been made aware of the exclusion clause when the contract was formed.


There are legal consequences for breach of contractual provisions. This is one reason why the courts insist that contractual terms are proved and why they have developed rules determining whether representations and statements are incorporated into the contract.


In this case, if one were to find themselves in the place of the claimant, the clause was not only onerous so far as she was concerned but its' effects had not been brought to her attention and explained. There was no way for the notice to come to her attention as it was on the rear of the bedroom door. Even if it had come to her notice there would have been a good chance that she could not have realised its significance or that it purported to form part of the contract.


The fact that it was placed away from the reception and in the room itself appears to have raised the question of whether it was properly intended to form part of the contract and whether it was intended that legal relations were to be created. If the provision was important to the hotel then it ought to have been placed in a more prominent position so that customers became aware of it at the time the contract was entered into. The provisions seems to have failed under this reasoning.


Finally the court seemed satisfied that Mrs Olley was completely ignorant about the clause so they reasoned that it was a nonsense to try and incorporate such a measure in the contract as it failed to comply with these accepted rules.


It is important to realise that the effect of the judgement was not to prohibit exclusion clauses per se but to recognise that there were sensible practical measures which the hotel company could have adopted to ensure that reasonable notice or prominence was given to the proposed term.


The company could have adopted the safest measure of incorporating the term in the contract to be signed by the customer. Alternatively it could be argued that the company should have given prominence to the provision by producing a notice and handing it to the party to be bound before or at the time the contract was formed. The written notice would specify the terms of the provision and make it clear that the contract was entered into on those terms. Another way would have been for a prominent notice, explaining the provisions, to be clearly and conspicuously displayed and making it clear that the notice formed part of the contract.


These principles are evidenced elsewhere.


The point was very well illustrated in Chapelton v Barry UDC (1940). Briefly the facts were that a Mr Chapelton went to the coast with a friend. Mr Chapelton hired two deckchairs and paid the money to an attendant and was given two tickets which he put in his pocket. There was writing on the ticket which amongst other things purported to exclude liability for any accident or damage arising from the hire of the deckchair. Unfortunately the canvas at the top of the chair tore causing the chair to give way when Mr Chapelton sat on it. Initially the court ruled in favour of the Council on the basis that whilst the Council may have been negligent the ticket contained an exclusion clause exempting them from liability.


On appeal the Court decided that the display of the deckchairs amounted to an offer to enter into a contract which had been accepted by Mr Chapelton when he took two chairs for himself and his friend. The ticket was merely a receipt. By the time the ticket had been issued the contract had been concluded and the exclusion clause could not form part of the contract as it had been issued too late. In giving their reasons for their decision to allow the appeal the court took the time to explain that they distinguished the present case from tickets issued by railway companies which commonly referred to terms and conditions on the back of their tickets. The question then arose as to whether the purchaser or customer had notice of the contents but the court were at pains to say that this was not such a case as the contract had been formed by selecting two chairs. The ticket was intended to provide evidence that payment had been made if Mr Chapelton had been challenged later by an attendant. Whereas tickets issued by railway companies often contained terms and conditions concerning the terms on which the passenger was to be carried.


Indeed the above court stated that they felt that the trial judge had erred in linking the case of Mr Chapelton with the case of Thompson v London Midland and Scottish Railway (1930).


The significance of the case will have reduced because of the passing of The Unfair Contract Terms Act 1977. In some cases exclusion clauses were rendered void by the Act depending on the nature of the matter excluded. The Act generally applies to consumer contracts and does not include all forms of contracts. Whilst it is not wise to generalise, the Act is there to protect consumers, in addition, exclusion clauses will only be operable if they satisfy a reasonableness test for which there are guidelines set out in the act. This results in it being necessary to consider if the exclusion clause meets the reasonableness test under the 1977 Act instead of the determining issue being whether the exclusion clause operates under the contract.


The Unfair Terms in Consumer Contracts Regulations 1999 sought to address the use of unfair terms in contracts with consumers but the main thrust of the regulations is to focus on the fairness of the term in question and does not limit itself to exclusion clauses alone. The Regulations provide a longer list of unfair terms which can be enforced on a more general basis, but they do not apply to as wide a range of contracts.


The Unfair Contract Terms Act 1977 applies to all contracts whereas the The Unfair Terms In Consumer Contracts Regulations 1999 distinguishes between contracts between businesses and contracts between businesses and consumers.

(Word count 1631)


Contract Law - Exemption Clauses Part 1by Law Sessions YouTube


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