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Contract Law: Exclusion Clauses
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Comprehensive notes for Contract Law: Exclusion Clauses.
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EXCLUSION CLAUSESLecture Notes
Elements of Contract Law
Law - Year One
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(a) INTRODUCTION
Definition
Yates: "any term in a contract restricting, excluding or modifying a remedy or a liability arising out of a breach of a
contractual obligation"
They essentially look forward to potential problems that might arise out of a contract.
Purpose/Application
• Commercial Context: It is often not a problem in these contexts as both parties most likely have equal bargaining
power and can hence allocate risk to their will
• Consumer Context: Exclusion clauses are often times applied unfairly in such cases as contracts are simply presented
here. These are known as contracts of adhesion/standard form contracts.
An instance where exclusion clauses are completely fine in standard form contracts: You are going on a holiday to a
warm country with a travel insurance. You wouldn’t want to pay extra for a more expensive holiday which has a
money back guarantee (if you can’t make it). Exclusion clauses are applicable here because of the cheap flying rates.
✓ L’Estrange v Graucob - Supplier of these vending machine in this case no responsibility of the quality of the machine.
These problems are governed by many statutes notably Consumer Rights Act 2015. In resolving these cases, the
Courts do not deem these clauses unenforceable without any analysis. They look for reasonability. This was seen with
cases involving ticket sales - where the reasonable notice requirement was applied stringently. They also interpret
narrowly, taking the literal meaning of the description of the clause. When there is ambiguity, any other possible
interpretation will be applied instead.
• Freedom to contract vs. oppression of the weak:
This is a balance that Courts often struggle with. Courts don’t want to create disincentives that prevent businesses
from entering into contracts by being strict with exclusion clauses. On the other hand, they want to prevent sellers
and manufacturers of goods and services from taking advantage of individual consumers whom do not have much
power themselves
Factors that the Courts look into when determining the applicability of an exclusion clause:
• the parties involved
• their bargaining powers.
Example: If a small business is having a dealing with Microsoft, even it is a ‘business to business’ contract it will deemed
inapplicable here due Microsoft’s greater influence.
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(b) TYPES OF AN EXCLUSION CLAUSE
• Exclusion clauses: Express terms in contract exempting one of the parties from liability for breach (blanket
statements)
Example: “no liability for loss or damage howsoever arising”
• Limitation clauses: Limits rather than exclude liability or remedies. Limitation could arise in the following
situations:
➢ Time limits
Example: There will be no liability following the date after 6 months.
➢ Money
Example: There is no liability beyond £1000.
➢ Notification requirements
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(c) LIMITATION CLAUSES
At common law interpreted less restrictively than exclusion clauses.
• Person relying on an exemption clause must show that loss/damage is within the scope of the clause
• But plaintiff must first prove that loss/damage was caused by a breach of contract
✓ Ailsa Craig v Malvern - This case Involved a contract between Securicor (S) and Aberdeen Shipping Vessels
Associations. S was supposed to provide protection at the location (harbour) where the ships (which included
that of AC's) were moored. There was negligence and breach of contract as AC's ship sank. The contract
contained an exclusion clause: in the event of negligence or breach of contract, S would not be liable for any
amount exceeding £1000 in any one claim and would not be liable for more than £10,000 in a 12 month period
(limitation by money). This is a HC case. It was determined that where there is a limitation of liability, the Courts
should rely on the natural meaning of the words and not be too eager to find amb iguity. The claim was
unsuccessful in showing that Courts are more likely to uphold limitation clauses if they are worded clear enough.
✓ Darlington Furniture v Delco Australian - This Australian case is used to illustrate a difference in approach. Australian
Courts apply limitation clauses as a matter of construction whilst upholding the Contra Proferentum Rule. This is a
HC case. In this case, because this was a contract between two businesses, there was less of a question about the
reasonability or the fairness of such clauses, as both the parties know what they are getting into. So even though there
was a pretty broad limitation clause in this case, the court upheld it nonetheless.
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