An exclusion clause is a term in a
contractthat seeks to restrict the rights of the parties to the contract. Exclusion clauses generally fall into one of these categories:
Traditionally, the district
courts have sought to limit the operation of exclusion clauses. In addition to numerous common lawrules limiting their operation, in England and Wales, the main statutoryinterventions are the Unfair Contract Terms Act 1977and the Unfair Terms in Consumer Contracts Regulations 1999. The Unfair Contract Terms Act 1977applies to all contracts, but the Unfair Terms in Consumer Contracts Regulations 1999, unlike the common lawrules, do differentiate between contracts between businesses and contracts between business and consumer, so the lawseems to explicitly recognize the greater possibility of exploitation of the consumerby businesses.
Types of Exclusion Clause
* True exclusion clause: The clause recognises a potential
breach of contract, and then excuses liability for the breach. Alternatively, the clause is constructed in such a way it only includes reasonable care to perform duties on one of the parties.
* Limitation clause: The clause places a limit on the amount that can be claimed for a
breach of contract, regardless of the actual loss.
* Time limitation: The clause states that an action for a claim must be commenced within a certain period of time or the cause of action becomes extinguished.
Term Must be Incorporated
courts have traditionally held that exclusion clauses only operate if they are actually part of the contract. There seem to be three methods of incorporation:
* Incorporation by signature: according to "
L'Estrange v Graucob" [  2 KB 394] , if the clause is written on a document which has been signed by all parties, then it is part of the contract.
* Incorporation by notice: the general rule, as provided in "
Parker v SE Railway" [(1877) 4 CPD 416] is that an exclusion clause will have been incorporated into the contractif the person relying on it took reasonable steps to draw it to the other parties' attention. " Thornton v. Shoe Lane Parking" [  2 WLR 585] seems to indicate that the wider the clause, the more the party relying on it will have had to have done to bring it to the other parties' attention. The notice must be given before formation of the contractas illustrated in "Olley v Marlborough" [  1 All ER 127] .
* Incorporation by previous course of dealings: according to "
McCutcheon v David MacBrayne Ltd" [  1 WLR 125] , terms (including exclusion clauses) may be incorporated into a contractif course of dealings between the parties were "regular and consistent". What this means usually depends on the facts, however, the courts have indicated that equality of bargaining power between the parties may be taken into account.
Judicial Control of Exclusion Clauses
trict Literal Interpretation
For an exclusion clause to operate, it must cover the breach (assuming there actually is a breach of contract). If there is, then the type of liability arising is also important. Generally, there are two varieties of
liability: strict liability(liability arising due to a state of affairs without the party at breach necessarily being at fault) and liability for negligence(liability arising due to fault).
courts have a tendency of requiring the party relying on the clause to have drafted it properly so that it exempts them from the liability arising, and if any ambiguity is present, the courts usually interpret it strictly against the party relying on the clause.
As espoused in "Darlington Future Ltd v. Delcon Australia Pty Ltd" [(1986) 161 CLR 500] , the meaning of an exclusion clause is construed in its ordinary and natural meaning in the context. Although we construe the meaning much like any other ordinary clause in the
contract, we need to examine the clause in light of the contract as a whole. The judge in "R + B Custom Brokers Co. Ltd. v United Dominions Trust Ltd." [  1 All ER 847] refused to allow an exemption clause, of which did cover the nature of the implied term, on the grounds that it did not make specific and explicit reference to that term. [The term in question was the implied term as to fitness-to-purpose pursuant to the Sale of Goods Act 1979 s14(3).]
If, after attempting to construe an exclusion clause (or indeed any other contractual term) in accord with its ordinary and natural meaning of the words, there is still ambiguity then (if the clause was imposed by one party upon the other without negotiation) the
contra proferentemrule applies. Essentially this means that the clause will be construed against the person who imposed its inclusion. that is to say, "contra" the "proferens".
In terms of
negligence, the courts have taken the approach that it is unlikely that someone would enter into a contractthat allows the other party to evade fault based liability. As a result, if a party wishes exempt his liability for liability, he must make sure that the other parties understand that. The decision in "Canada SS Lines Ltd v. The King" [  AC 192] held that:
* If the exclusion clauses mention "negligence" explicitly, then liability for liability is excluded.
* If "negligence" is not mentioned, then liability for liability is excluded only if the words used in the exclusion clause are wide enough to exclude liability for liability. If there is any ambiguity, then the contra proferentem rule applies.
* If a claim on another basis can be made, then liability for liability is not covered by the exclusion clause.
Australia, the "four corners rule" has been adopted in preference over the idea of a "fundamental breach" ("The Council of the City of Sydney v. West" [(1965) 114 CLR 481] ). The court will presume that parties to a contract will not exclude liability for losses arising from acts not authorised under the contract. However, if acts of negligence occur during authorised acts, then the exclusion clauses shall still apply.
If the contract is for the carriage of
goods, if the path is deviated from what was agreed, any exclusion clauses no longer apply.
Even if terms are incorporated into the
contractand so would be effective, there are various statutory controls over the types of terms that may have legal effect. The Unfair Contract Terms Act 1977renders many exemption clauses ineffective. The Unfair Terms in Consumer Contracts Regulations 1999provide further protection for consumers.
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