When two businesses agree to enter into a commercial contract, they are generally free to choose and negotiate the terms of that contract between themselves. In doing so, businesses will often attempt to reduce their potential liabilities under the contract; if insurance is not available or is particularly expensive, for example.
In those circumstances businesses will usually insert into the contract limitation or exclusion clauses setting out potential liabilities they wish to reduce or avoid. Although there is considerable discretion afforded by the law in this process there are also restrictions. Exclusion Clauses
Exclusion clauses are found in both negotiated contracts and business standard term and conditions. Exclusions usually relate to liabilities for breach of contract or misrepresentation and may be implied or expressed in a contract.
The clauses usually operate in one of two ways. Firstly there are clauses that seek to reduce the scope of the obligations under the contract. Secondly there are clauses that seek to place limits on a party’s ability to recover damages in the event of a breach of any of the terms of a contract. The latter clauses usually place limits on the amount of damages that may be recoverable or place time limits on the recovery of damages for any breach.
General Rules
The Unfair Contract Terms Act 1977 provides the main legislative framework for exclusion clauses – the primary restrictions are on exclusion of liability for death or personal injury resulting from negligence and exclusions that are unreasonable.
Aside from the legislation, courts have also shaped the construction and operation of exclusion clauses through case law. The common law requires courts to take into account the following points:
- An exclusion clause must have been incorporated into the contract with the taking of reasonable steps to bring it to the attention of the other party
- The clause cannot deprive one side’s terms of all contractual force
- Exclusion clauses are interpreted strictly against the party that seeks to rely on them
- Rights of set-off can be excluded
- What amounts to an exclusion clause is a question of substance and effect
- A third party cannot rely on an exclusion clause unless he is party to the contract
- Liability for fraud cannot be excluded
- Exclusion clauses will not be applied where they are contrary to public policy
Rollingsons has lawyers experienced in drafting standard terms and conditions and negotiating bespoke contracts; if you need advice or would like more information please contact James Crighton via e-mail jcrighton@rollingsons.co.uk or by phone on 0207 611 4848.
