Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500
Court approach to limitation and exclusion clauses, contra proferentem rule
Delco Australia (the Claimant/Respondent) entered into an agreement with Darlington Futures Ltd (the Defendant/Appellant), for the provision of brokerage services by the Defendant to the Claimant. The contract included a questionnaire which asked whether the Claimant would like their account to be traded at the Defendant’s discretion, which the Claimant declined. The Contract also included several exclusion and limitation clauses, for instance Clause 6 which excluded liability for any ‘loss arising in any way out of any trading activity undertaken on behalf of the client whether pursuant to this agreement or not’ and Clause 7, which limited the Defendant’s liability to $100 for ‘any claim arising out of or in connection with the relationship established by this agreement’. Without the Claimant’s authority, the Defendant engaged in risky transactions which left the Claimant exposed to the market at several instances and as a result, the Claimant incurred heavy losses. The Claimant sued for $279,715.36.
The issue in this case was the validity of both the limitation and exclusion clauses, as well as the court’s approach to ambiguity in both types of clause.
The court observed that both types of clauses must be construed while having regard to the entirety of the contract. Further, where possible the natural meaning of the clause should be given, but in cases of ambiguity the court may interpret the clause contra proferentem (against the party who drafted the clause and now seeks to rely on it). It was held that the exclusion clause in this case was not valid because it excluded liability for trading done on behalf of the Claimant, whereas the contested trades were done without authority from the Claimant (and the Claimant had expressly declined to give the Defendant discretion in the matter). Therefore, the trades were not done on Claimant’s behalf and the exclusion clause could not apply to them. The limitation clause did, however, apply since it was not limited in its language to transactions done on behalf of the Claimant. The Defendant was therefore successful in capping his liability to $100 per transaction.