Has the common law bailment relationship been modified by contract?
Bailment law disputes - February 2024
Bailment law disputes - February 2024
So far, we have considered obligations and liabilities that arise in the context of a common law bailment relationship. However, there can also be a contract between the parties that amends the common law bailment relationship by, for example, modifying a service provider’s precise duties and scope of liability.
Commonly, a contract will exist between the consumer and service provider relating to the services that the service provider was engaged to provide. This contract might have additional written clauses that alter the obligations that exist between the two parties (including under the law of bailment). Such a contract may purport to narrow or broaden the service provider’s duties concerning the consumer’s goods or might otherwise seek to limit the service provider’s liability.
This resource includes information and scenarios relating to:
contractual modifications on liability
unfair contract terms
contracting out of disaster events
A service provider will be able to contract out of liability for the consumer’s loss by way of a contractual liability clause if:
An example of a clause that successfully excluded liability for a failure to take reasonable care in bailment occurred when the owner of a garage (the bailee) was not held liable for the theft of the bailor’s car from its premises. This was due to the operation of a warning displayed on the parking ticket that read: ‘Conditions – The motor vehicle mentioned on the other side hereof is garaged at the owner’s risk, and Gough’s Auto Parking Station will not be responsible for loss or damage of any description’.
While a prima facie case for negligence on the part of the garage owner had been established, the words on the ticket were clear enough to exclude liability on that occasion (noting that this clause was upheld and applied before the UCT regime came into operation).
A clause limiting liability will not be enforceable against the consumer unless the service provider also took reasonable steps to bring it to the consumer’s attention at the time that the contract was entered into. For example, the Court has held that it was not reasonably sufficient to give notice of an exclusion clause by stating in invoices that conditions of the contract would be made available upon request. Further, merely “proffering or displaying the document is not sufficient to satisfy the reasonable notice test” if the document is one in which a party would not usually expect special conditions. The service provider may need to take positive action by drawing the consumer’s attention to the relevant clause of the contract.
Unfair contract terms law is defined under the Australian Consumer Law (ACL) and ASIC Act and may be relevant in the context of contractual terms that seek to limit or restrict liability. If a clause of a relevant standard form contract purports to limit or exclude liability in a way that is ‘unfair’, then it will be void and unenforceable against the consumer under the Unfair Contract Terms regime (UCT Regime).
The UCT Regime applies to:
standard-form ‘consumer contracts’: contracts for the supply of goods or services, or for the purchase of an interest in land, to individuals predominantly acquiring the good, service, or interest in land for personal, domestic or household use); and
standard-form ‘small business contracts’: of businesses with less than 100 employees or with less than $10 million annual revenue.
Generally, a standard form contract is one that:
is prepared by the business;
contains a set of generic terms and conditions;
is not negotiated between parties and
is presented on a ‘take it or leave it’ basis.
Under these definitions, it is clear that the ACL is likely to apply to many of the most common bailment relationships discussed throughout this guide. For example, a contract between a mechanic and a consumer to repair a car would be classified as a consumer contract (as the customer is presumably acquiring the car repair for personal, domestic or household use) or a small business contract (if the mechanic falls under the definition of ‘small business’). Therefore, if the contract between those parties contains a clause purporting to limit or exclude liability for damage caused to the car, that clause would likely be subject to the UCT Regime.
Under the UCT Regime a term is unfair if:
it would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
it is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
A court can take into account any matter that it believes to be relevant but, generally speaking, its analysis would look at the level of transparency in the term and the contract as a whole. A term is transparent if it is expressed in reasonably plain language, legible, presented clearly and available to any party affected by the term. The more transparent and easier to understand that the contract is, the less likely it is to be considered unfair. Having said that, terms that are clear can still be unfair if they go too far in protecting one contractual party.
The ACL provides some helpful examples of unfair contract terms. A limitation of liability clause in such a standard-form contract can potentially constitute an unfair term if:
it limits, or has the effect of limiting, one party’s right to sue another party; or
it permits, or has the effect of permitting, one party (but not another party) to avoid or limit performance of the contract.
In a case brought by the Australian Competition and Consumer Commission in 2018, the Federal Court considered a series of terms excluding an employer’s liability for loss, damage or theft of goods left in the office ‘howsoever caused’, apart from the circumstances of ‘gross negligence or wilful misconduct’. The Court found these were unfair terms on the basis they created a significant imbalance in the parties’ rights, gave no corresponding right to the consumer, and would cause detriment if relied on by the employer.
When attempting to limit or exclude liability via contractual modification, service providers should ensure that the clause seeking to limit liability is:
clearly expressed;
only as broad as it needs to be; and
brought to the attention of the consumer prior to them entering the contract.
The facts:
Anil engages a self-storage centre in North Queensland to safeguard excess furniture while renovating his house. Upon signing the contract, Anil notes a clause stating that the storage centre “will not be responsible for any loss or damage caused by “acts of God” outside of the reasonable control of the storage centre”. Anil proceeds with the agreement on this basis.
The likely outcome:
In our view, a bailment relationship was created between Anil and the self-storage centre. The storage centre has a responsibility to ensure the goods are kept in a secure location. During emergencies or natural disasters, a court may be more lenient when considering decisions made in the “agony of the moment”. The enforceability of an exclusion clause in the contract, absolving the storage centre from liability, hinges on its clarity, the absence of ambiguity, and the explicit communication to the customer. In this case, the contract explicitly stated that the storage centre would not be responsible for damage caused by events outside its control. This clause is not an unfair contract term as it is not overly broad and is reasonable in protecting the rights of the storage centre.
Would it be an unfair contract term if a service provider specifically contracted out of liability from natural disasters in a consumer contract?
At the date of this resource, no cases have contemplated this specific point. A contractual term seeking to exclude or limit the service provider’s liability to the consumer in specific circumstances (such as force majeure events or natural disasters) is likely to be ‘fair’ in most circumstances provided that it is clearly and specifically expressed, is reasonably necessary for the protection of the service provider’s interest and is not overly broad. The more specific a clause, the less likely it is to constitute an unfair contract term.
It is commonplace in commercial contracts for a party to contract out of liability arising out of ‘force majeure’ events or other ‘acts of God’. Such events are outside of the parties’ control and therefore, it would be considered reasonably necessary for a clause to limit liability for such events to protect a party’s interests.
The following resource provides practical considerations for legal workers who are acting for a service provider and/or consumer in a dispute that has arisen in the context of a bailment relationship after a disaster. Read the resource, here:
This resource was last updated on 14 February 2024. This is legal information only and does not constitute legal advice. You should always contact a lawyer for advice specific to your situation. You can read our full disclaimer here: Disclaimer and copyright for our Disaster Legal Support Resource Hub – Justice Connect.