Exclusion Clauses

10 Key excerpts on "Exclusion Clauses"

• 

  eBook - PDF

  Contract Law

  • Chris Turner(Author)
  • 2013(Publication Date)
  • Routledge

    (Publisher)

  7 The contents of the contract: Exclusion Clauses  Z 7.1 Judicial control of Exclusion Clauses 7.1.1 Definition and scope of Exclusion Clauses 1 An exclusion clause (exemption clause) is a term in a contract aiming to exclude the liability of the party inserting it from liability for his/ her contractual breaches, or even for torts. 2 A limitation clause restricts or limits the extent of the liability. 3 Both types of clause are harsh on the other party, particularly where that party is of weaker bargaining strength. 4 There was previously no way of avoiding such clauses because of the maxim caveat emptor (let the buyer beware) – the other party had to try to negotiate a contract without the clause. Even the Sale of Goods Act 1893 allowed for such clauses. 5 The late twentieth century saw moves towards consumer protection, with the courts, statute and EU law developing methods to restrict the application of such clauses. 6 There are three elements to judicial recognition of Exclusion Clauses:  O the clause must be actually incorporated into the contract to show that it is part of the contract and can be relied upon;  O construction of the contract must show the clause actually protects the party inserting it for the damage in question, and thus no advan- tage is gained from doubt or ambiguity;  O other tests may be applied if appropriate. 108 The contents of the contract: Exclusion Clauses Judicial control of Exclusion Clauses 109 7.1.2 Incorporation of Exclusion Clauses 1 Rules on incorporation are interchangeable with those for incorporation of terms generally. 2 Parties are generally bound by the terms of any agreement they have signed ( L’Estrange v Graucob (1934)). 3 Parties are only bound by an exclusion clause of which they had express knowledge at the time the contract was formed ( Olley v Marlborough Court Hotel (1949)).

  Sign up to read

  Learn more about book
• 

  eBook - ePub

  Unlocking Contract Law

  • Chris Turner(Author)
  • 2014(Publication Date)
  • Routledge

    (Publisher)

  7 The obligations under a contract: Exclusion and limitation clauses AIMS AND OBJECTIVES After reading this chapter you should be able to:

    Define exclusion and limitation clauses

    Understand judicial controls on use of exclusion or limitation clauses

    Understand the statutory controls under the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999

    Critically analyse the area

    Apply the law to factual situations and reach conclusions

  7.1  Definition and scope of Exclusion Clauses and limitation clauses

  A clause in a contract that seeks to either limit or exclude liability for breaches of the contract is itself a term of the contract. It is therefore subject to all of the normal rules regarding terms, particularly those concerning incorporation of the term.

  Such terms are often referred to in general terms as exemption clauses. Since they act as contractual defences they can be particularly harsh on the party subject to them and they often highlight the inequality of bargaining strength that can exist between different parties, notably providers of goods and services and consumers. Historically, the principle of caveat emptor (meaning ‘buyer beware’) gave a great deal of leeway to a seller and very little protection to a consumer. Even where statute intervened to create protections for the consumer, as in the Sale of Goods Act 1893, the sellers’ superior position was generally preserved. A good example of this is s 55 of the 1893 Act that allowed sellers to exclude liability for breaches of the implied conditions in the Act, thus rendering it relatively ineffective.

  As a result of the potential for unfairness, judges gradually developed common law rules to prevent sellers from having an unfettered discretion to avoid liability for their contractual breaches. During the latter half of the twentieth century a general trend towards consumer protection saw the introduction of more effective statutory controls and the UK has also had to implement controls created in European Community law.

  Sign up to read

  Learn more about book
• 

  eBook - PDF

  Text, Cases and Materials on Contract Law

  • Richard Stone, James Devenney(Authors)
  • 2017(Publication Date)
  • Routledge

    (Publisher)

  Chapter contents 7.1 Introduction 274 7.2 Common law 276 7.3 Unfair Contract Terms Act 1977 291 7.4 Consumer Rights Act 2015 321 Additional reading 354 Chapter 7 Clauses excluding or limiting liability CLAUSES EXCLUDING OR LIMITING LIABILITY 274 | 7.1 Introduction In the previous chapter we considered the contents of contracts and the rules that are applied by the courts in ascertaining what obligations have been assumed by the parties. In this chapter we deal with a particular type of contract term – those that purport to exclude or limit the liability and/or remedies of contracting parties in contract and/or tort. There is nothing inherently objectionable about clauses of this kind. Indeed, they provide an invaluable mechanism for allocating risks within transactions. For example, in contracts for the carriage of goods it may have been agreed that the owner should be responsible for insuring the goods against loss or damage in transit. In such cir-cumstances, it may be entirely reasonable for the carrier to exclude or limit his liability for loss or damage to the goods being carried. Exclusion Clauses also perform an important role in high-risk contracts, where the consequential losses might far exceed the contract price. For example, in a contract for the supply of an air-conditioning unit the supplier of a faulty unit to a factory may, for example, incur liability for personal injury to the factory employees, damage to goods stored in the factory and loss of profits caused by closure of the factory. A small business may not be able to bear such extensive loss, so may seek to rely on an exclusion or limitation clause in order to manage their potential liability. Problems arise when, for example, there is inequality of bargaining power and essentially the clause has been forced upon the weaker party by the strong.

  Sign up to read

  Learn more about book
• 

  eBook - ePub

  Text, Cases and Materials on Contract Law

  • Richard Stone, James Devenney(Authors)
  • 2022(Publication Date)
  • Routledge

    (Publisher)

  Chapter 7 Clauses excluding or limiting liability

  Chapter contents 7.1 Introduction 7.2 Common law 7.3 Unfair Contract Terms Act 1977 7.4 Consumer Rights Act 2015 Additional reading

  7.1 Introduction

  In the previous chapter we considered the contents of contracts and the rules that are applied by the courts in ascertaining what obligations have been assumed by the parties. In this chapter we deal with a particular type of contract term – those that purport to exclude or limit the liability and/or remedies of contracting parties in contract and/or tort. There is nothing inherently objectionable about clauses of this kind. Indeed, they provide an invaluable mechanism for allocating risks within transactions. For example, in contracts for the carriage of goods it may have been agreed that the owner should be responsible for insuring the goods against loss or damage in transit. In such circumstances, it may be entirely reasonable for the carrier to exclude or limit his liability for loss or damage to the goods being carried. Exclusion Clauses also perform an important role in high-risk contracts, where the consequential losses might far exceed the contract price. For example, in a contract for the supply of an air-conditioning unit the supplier of a faulty unit to a factory may, for example, incur liability for personal injury to the factory employees, damage to goods stored in the factory and loss of profits caused by closure of the factory. A small business may not be able to bear such extensive loss, so may seek to rely on an exclusion or limitation clause in order to manage their potential liability.

  Problems arise when, for example, there is inequality of bargaining power and essentially the clause has been forced upon the weaker party by the strong. In the previous chapter, we saw an example of this in Parker v South Eastern Railway

  Sign up to read

  Learn more about book
• 

  eBook - PDF

  Commercial Contracts

  A Practical Guide to Deals, Contracts, Agreements and Promises

  • Chris Thorpe, John Bailey(Authors)
  • 1996(Publication Date)
  • Woodhead Publishing

    (Publisher)

  4.5.5 The abuse of Exclusion Clauses The problem of course is that the parties' freedom to apportion the liabilities under a contract as they see fit makes it possible, at least in theory, for a party to contract on terms which impose no liabili-ties on him at all either to the other party or to third parties. This is the Holy Grail of commerce - doing business and making money without exposing yourself to any risks whatsoever. Two groups in particular have succumbed to the temptation and set off in search 93 Commercial contracts of this Holy Grail. The first group consists of those businesses which have a monopoly (or an effective monopoly) on the supply of particular goods or services. They are in a position to dictate the terms of supply. The second, much larger, group consists of those businesses which use standard terms and conditions. As we shall see in section 5.3, standard terms and conditions are intended to be incorporated into the terms of the contract without the other party even having read them. The terms used by both of these groups tend to include one-sided and wholly unreasonable exclusions of liability and indemnities. The worst offenders are of course mo-nopoly suppliers which use standard terms and conditions. 4.5.6 The law's hostility to Exclusion Clauses In principle Exclusion Clauses and indemnities are no different from any other contractual provisions: they are applied in accordance with the intentions expressed by the parties. The fact that such a term has been imposed by a monopoly supplier or has been incor-porated into the contract as part of one party's standard terms and conditions does not in theory justify any departure from this gen-eral principle. In practice however the law has reacted to the abuse of Exclusion Clauses and indemnities with understandable hostility. This has shown itself firstly in the interpretation of such terms by the courts and subsequently in the passing of the Unfair Contract Terms Act 1977.

  Sign up to read

  Learn more about book
• 

  eBook - ePub

  Using Commercial Contracts

  A Practical Guide for Engineers and Project Managers

  • David Wright(Author)
  • 2016(Publication Date)
  • Wiley

    (Publisher)

  Chapter 10 Liability Exemption Clauses

  10.1 Introduction

  An exemption clause is a clause that either excludes or limits liability.

  Before the Unfair Contract Terms Act 1977, liability exemption clauses always needed to be very carefully drafted. Since the Act it is clear that the test of reasonableness as defined by the Act has given the courts much more freedom to deal with exemption clauses. As a result leading academic lawyers have said that exemption clauses do not need to be as carefully drafted as before. However, it is probably advisable not to take too many chances. Exemption clauses should still be carefully drafted.

  Hotel Services Ltd v. Hilton International Hotels (2000) This case concerned a contract for the supply and installation of ‘Robobars’ in hotel rooms. They were faulty. The contract contained a clause excluding liability for ‘indirect or consequential loss’. The court decided that this clause did not exclude liability for ‘direct’ losses. The supplier was therefore liable for the costs of removal etc.

  And even when they are properly drafted they have to be reasonable –

  Britvic Soft Drinks Ltd v. Messer UK Ltd (2002) MUK supplied carbon dioxide to BSD for use in soft drinks. The contract required the gas to comply with BS 4015, which it did. However, it was also contaminated with Benzene, which made it totally unfit for use with food products. Was a clause excluding liability under the implied terms of fitness for purpose and satisfactory quality reasonable? The court decided that it was unreasonable. BSD relied on MUK and would not expect to have to test the gas before use, and MUK could pass liability on to the actual manufacturer, which it had in fact already done.

  The law's approach

  The law's approach is that people have a right to compensation if they are injured or damaged by the wrongful actions of someone else. So everyone should accept responsibility if he causes loss or damage to others. Therefore, any clause that tries to reduce or avoid liability should only be allowed to succeed when it can pass the most stringent tests.

  Sign up to read

  Learn more about book
• 

  No longer available |Learn more

  Remedies in Construction Law

  • Roger ter Haar(Author)
  • 2017(Publication Date)
  • Informa Law from Routledge

    (Publisher)

  74 Briggs J summarised the applicable principles:

  “The principles applicable to the construction and effectiveness of contractual limitations on liability such as [the clause he was considering] are to be found set out in detail in Photo Production Ltd v Securicor Transport Ltd75 … and may be summarised as follows:

  1. ‘(1) There is no principle that a party may not exclude liability for fundamental breach of contract.
  2.  (2) In relation to a commercial contract (where the parties are usually bargaining on equal terms and free to insure against risks) the parties are at liberty to apportion the risks arising from breach of contract as they think fit, so that the extent of an exclusion clause is merely a question of construction.
  3.  (3) Nonetheless, if the effect of an exclusion clause is to deprive the agreement of the legal characteristics of a contract, by conferring on one party the liberty to ignore his obligations with impunity, the exclusion may be held to be repugnant to the contract and of no effect.’ ”

  20.38 This principle can be traced back to the House of Lords decision in Glynn v Margetson & Co76 in which Lord Halsbury LC said forthrightly:77

  “Looking at the whole of the instrument, and seeing what one must regard, for a reason which I will give in a moment, as its main purpose, one must reject words, indeed whole provisions, if they are inconsistent with what one assumes to be the main purpose of the contract.”

  Consequential and indirect losses

  20.39 Commercial contracts frequently contain clauses excluding liability for “consequential losses”, or “indirect losses”, frequently coupled with an exclusion of liability for loss of profits. Such clauses are important, because without them a party might be exposed to substantial liabilities the extent of which it is difficult or impossible to predict in advance. There are many authorities dealing with the effect of such provisions. Recent cases have reflected an approach that is less rule bound than the earlier cases considered below; in particular there has been a move away from necessarily aligning such exclusions with the losses falling within the second limb of Hadley v Baxendale

  Sign up to read

  Learn more about book
• 

  eBook - PDF

  Defences in Contract

  • Andrew Dyson, James Goudkamp, Frederick Wilmot-Smith, Andrew Dyson, James Goudkamp, Frederick Wilmot-Smith(Authors)
  • 2017(Publication Date)
  • Hart Publishing

    (Publisher)

  But this does not entitle the court to reject the exclu-sion clause, however unreasonable the court itself may think it is, if the words are clear and fairly susceptible of one meaning only. 13 Several varieties of exemption clause were identified by Donaldson J in Kenyon, Son & Craven Ltd v Baxter Hoare & Co Ltd : 14 Protective conditions are of three distinct types, namely, first, those which limit or reduce what would otherwise be the defendants’ duty; second, those which exclude the defendants’ liability for breach of specified aspects of that duty and third, those which limit the extent to which the defendant is bound to indemnify the plaintiff in respect of the consequences of breaches of that duty. Again the emphasis is what would otherwise have been the expected performance, ignoring the exemption clause. Accordingly exemption clauses have been tradi-tionally analysed in the common law in a manner which is difficult to reconcile with the long-standing requirement that a contract should be construed as a whole. Rather the approach has been initially to construe the contract as though the exemp-tion clause did not appear within it. As Scrutton LJ stated in Rutter v Palmer , ‘the liability of the defendant apart from the exempting words must be ascertained’. 15 In stark contrast, in his 1964 book on exemption clauses 16 Professor Brian Coote essayed a rival approach whereby such clauses were analysed as defining the obliga-tions of the parties, rather than delimiting them. On this approach the usual ambition of the common law, to construe the contract as a whole, is taken seriously. As the editors of Chitty have suggested, ‘There is considerable logical force in this conten-tion and recent dicta have tended to support it’. 17 But as the other Holmes—Oliver Wendell—famously opined: ‘The life of the law has not been logic but experience’.

  Sign up to read

  Learn more about book
• 

  eBook - ePub

  Deal Makers

  How intelligent use of contracts can help you sell more and deliver better

  • Tiffany Kemp(Author)
  • 2013(Publication Date)
  • Anoma Press

    (Publisher)

  It’s worth understanding how this works, and what you’re able to do within the law, if only so that you don’t waste valuable time, energy and client goodwill arguing about points you’re never going to win – or ones that don’t deliver you any real benefit. Appreciating how these provisions work in practice will help you engage your legal counsel in a sensible and pragmatic discussion about where to draw the line in your contract negotiations. Given the amount of time usually dedicated to these issues, it might also help to shorten your sales cycle!

  There are some liabilities you can’t exclude or limit

  Under English law (and many other legal systems), it is not permissible to exclude or limit your liability for death or personal injury caused by the negligence of your staff, or by defects in your product. Similarly, you are not permitted to exclude liability for fraud, including fraudulent misrepresentation (making statements you know to be untrue, to deliberately mislead the other party), or any other criminal acts.

  Because of this, you will often see wording along the following lines:

  Nothing in this Agreement shall limit or exclude Our liability for (i) personal injury or death caused by the negligence of Our employees or subcontractors in connection with their duties under this Agreement, or by defects in any Product supplied under this Agreement, or (ii) fraud or any criminal act, or (iii) any other liability that cannot be excluded by law.

  While this might seem to be stating the obvious, since such exclusions are not permitted, it acts to ensure that your other exclusions and limits of liability will actually be enforceable. Without a statement of this kind, it’s possible that the other party could argue your exclusion or limit of liability is not enforceable because it is an attempt to exclude liability for things that are not permitted.

  Direct and indirect losses

  Losses can be categorised in many different ways, and one that you may have come across is the distinction between ‘direct’ and ‘indirect’ losses. According to contract law as taught for decades, this distinction was applied according to the level of ‘remoteness’ of the loss in question from the breach that caused it.

  Sign up to read

  Learn more about book
• 

  eBook - PDF

  Law and the Built Environment

  • Douglas Wood, Paul Chynoweth, Julie Adshead, Jim Mason(Authors)
  • 2021(Publication Date)
  • Wiley-Blackwell

    (Publisher)

  The judge deemed that this notice was not adequate as the contract for the hire of the room had been made over the telephone and this unilateral attempt to introduce new terms once the contract had been completed would not be successful. Where Exclusion Clauses are properly incorporated the position is that liability can only be limited or excluded by clear words. The purpose of the exemption clause is another factor for the court to consider in deciding whether or not it is reasonable as demonstrated by the case of O ’ Brien v Mirror Group Newspaper Limited 68 . This case involved scratch cards distributed with a British newspaper. Due to an error 65 [1934] 2 KB 394 66 [1949] 1 KB 532 67 [1949]1 All ER 127 68 [2001] EWCA Civ 1279 78 Law and the Built Environment on the cards 1472 people were told they had won a sum of £50 000 each. The claimant attempted to hold the defendant to their promise to pay. The latter relied on its terms and conditions in seeking to avoid liability. The judge allowed the defendant to rely on its exclusion clause notwithstanding the fact that the terms and conditions were not printed in the edition of the paper the claimant purchased. The effect of the exclusion clause here was not to exclude liability altogether but merely to prevent a windfall for the claimant. 2.8.2 Statute The principal statutory provisions regulating unfair reliance on exemption clauses is the Unfair Contract Terms Act 1977 (UCTA) and the Unfair Terms in Consumer Contracts Regulations 1999. A draft bill Unfair Terms in Contracts was laid before Parliament in 2004 to unify the provisions of these two regimes but this has not yet become law. The Act covers liability in respect of a breach of contract and in respect of the tort of negligence. The Act only has application in respect of ‘ business liability ’ where the other party deals as a consumer.

  Sign up to read

  Learn more about book