The Law Handbook 2024

Chapter 7.1: How contract law works 685 was given to the party who would be disadvantaged by the exclusion clause before the formation of the contract. For example, if an automatic ticket machine in a car park had printed on it ‘issued subject to the conditions displayed in car park’ and these conditions, or exclusion clauses, were on a pillar opposite the ticket machine, then this could potentially be held to be unreasonable notice. The driver may then be entitled to sue despite the exclusion clause in the conditions. Courts have held that exclusion clauses are to be interpreted like any other clause. That is, according to an exclusion clause’s natural and ordinary meaning, read in the light of the contract as a whole, giving due weight to the context in which the clause appears, including the nature and object of the contract. The only exception to this is where the exclusion clause is ambiguous and gives rise to more than one meaning; in this case, a court will generally choose the meaning that goes against the party seeking to rely on the exclusion clause. Further, if the natural and ordinary meaning of an exclusion clause is that a party is absolved from all liability for failing to perform their obligations under the contract, then a court may decide that no contract actually exists. For example, if an airline ticket contains a clause reserving the airline’s right to abandon any flight, cancel any ticket, or refuse to carry any passenger, then no contract actually exists because the airline has excluded any obligation it has to perform the contract (see MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) [1975] HCA 55). Exclusion clausesmay also be excluded on the basis that they constitute misleading or unconscionable conduct or are contrary to public policy. For example, exemption clauses that limit liability for fraud, or breach of trust involving bad faith are invalid. Courts have generally found that unless clear words are used, exclusion clauses generally do not exclude liability for acts that were not authorised or permitted under the contract. Exclusion clauses may also be subject to statutory controls under the ACL that limit or void exclusion clauses because they are, for example, unfair or contrary to consumer guarantees (see Chapter 7.2: Consumer protection laws and Chapter 7.3: Consumer guarantees. Penalty provisions Some contracts contain terms that list the amount payable as damages if a particular term is breached. These terms are called ‘agreed damages clauses’. Where the amount is a ‘genuine pre-estimate’ of the likely damage that would be caused by a breach, the amount is called ‘liquidated damages’ and is enforceable against the party who breached the contract term. However, when the amount is ‘extravagant and unconscionable’ (i.e. it is out of proportion to the likely damage that would be caused by a breach), the amount is considered to be a ‘penalty’ and is unenforceable. To preserve parties’ freedom of contract, the courts have generally set a high threshold for what constitutes a penalty, as opposed to what constitutes liquidated damages. For example, in Paciocco v ANZ Banking Group Ltd [2016] HCA 28, Paciocco had multiple credit cards and deposit accounts with the bank. The bank charged Paciocco a number of late payment fees, ranging from $20 to $35. Subsequently, Paciocco initiated proceedings alleging the fees amounted to penalties. In determining whether the fees charged were out of proportion to the damage that followed Paciocco’s late payments, the court considered the bank’s loss provisioning, operational and regulatory capital costs. After acknowledging these costs as legitimate interests protected by the late payment fees, the court held that the fees did not amount to penalties and dismissed Paciocco’s appeal. Breach of contract How a contract can be breached There are twomain ways a party can breach a contract: 1 where a party fails to actually do what a clause states must be done by the time agreed, or if no time is provided, within a reasonable time; and 2 where a party’s conduct manifests an unwillingness or inability to perform the contract; if this occurs before the performance is due, it is considered to be an anticipatory breach. For example, A is required to deliver a container of goods within seven days of signing a contract with