Exclusion clauses
Exclusion clauses are generally found in contracts`. These types of
clauses operate to exclude or restrict the rights of a party. For example,
when a party to a contract wishes to limit their liability in the event that
they breach the contract they will usually include an exclusion clause,
limiting the amount that the other side can claim to a specified total.
Sometimes, a party may include a provision attempting to exclude all
liability for a certain thing that could go wrong. Exclusion clauses may also
be called ‘exemption’ or ‘exception’ clauses. They operate for the benefit
of one party to an agreement. It is always difficult for commercial contract
drafters to know when an exclusion clause goes too far and might be
stuck out as being unreasonable under the Unfair Contract Terms Act
1977 (UCTA).
On 15 April 2008 the Court of Appeal handed down its ruling in the case of
Regus (UK) Ltd v Epcot Solutions Ltd overturning a High Court decision
that had previously caused suppliers considerable concern. The Court of
Appeal decision set out some important factors that may be taken into
account in determining whether an exclusion clause is enforceable and to
be held valid.
The case concerned the reliance by a supplier of serviced office
accommodation (Regus) on part of an exclusion clause in its standard
terms of business. The part of the exclusion clause in question sought to
exclude liability “in any circumstances” for “loss of business, loss of
profits, loss of anticipated savings, loss of or damage to data, third party
claims or any consequential losses”. A further clause limited Regus’
liability for other losses, damages or expenses to £50,000.
The customer (Epcot) complained to Regus about defective air
conditioning in the office, and when this was not fixed by Regus, Epcot
stopped paying Regus the service charges due under the agreement.
, Regus brought proceedings against Epcot for the amounts due to it, and in
response, Epcot argued that the failure to provide air conditioning
amounted to a breach of contract and counterclaimed for loss of profits,
loss of opportunity to develop its business and distress, inconvenience
and loss of amenity.
In order to defeat part of Epcot’s claim, Regus had to show that the
Exclusion Clause was enforceable in particular that it was reasonable
under the Unfair Contract Terms Act 1977 (UCTA).
In a High Court judgment of May 2007, the court had ruled that although
in theory it was entirely reasonable for Regus to restrict damages for loss
of profits and consequential loss, the clause was unreasonable as a whole
as the exclusion was so wide that it effectively left Epcot without a
remedy for a basic service such as defective air conditioning. It was
therefore unenforceable, leaving Regus exposed.
Regus appealed on the grounds that the High Court judge had been wrong
to say that the Exclusion Clause was unreasonable under UCTA and that it
should be entitled to limit its liability in that way. The Court of Appeal
agreed with Regus and reversed the High Court’s ruling.
The purpose of UCTA is to protect contracting parties (particularly
consumers and business parties contracting on other business parties’
standard terms of business) from onerous contractual provisions such as
exclusion and limitation of liability clauses. UCTA imposes limits on the
extent to which liability for breach of contract, negligence or other
breaches of duty can be avoided in a contract.
Where a clause is contrary to the mandatory restrictions set out in UCTA
or is deemed by the court to be “unreasonable”, such a clause will be
unenforceable.
Amongst other restrictions, Section 3 of UCTA is particularly important in
the context of business to business contracts where the supplier is dealing
Exclusion clauses are generally found in contracts`. These types of
clauses operate to exclude or restrict the rights of a party. For example,
when a party to a contract wishes to limit their liability in the event that
they breach the contract they will usually include an exclusion clause,
limiting the amount that the other side can claim to a specified total.
Sometimes, a party may include a provision attempting to exclude all
liability for a certain thing that could go wrong. Exclusion clauses may also
be called ‘exemption’ or ‘exception’ clauses. They operate for the benefit
of one party to an agreement. It is always difficult for commercial contract
drafters to know when an exclusion clause goes too far and might be
stuck out as being unreasonable under the Unfair Contract Terms Act
1977 (UCTA).
On 15 April 2008 the Court of Appeal handed down its ruling in the case of
Regus (UK) Ltd v Epcot Solutions Ltd overturning a High Court decision
that had previously caused suppliers considerable concern. The Court of
Appeal decision set out some important factors that may be taken into
account in determining whether an exclusion clause is enforceable and to
be held valid.
The case concerned the reliance by a supplier of serviced office
accommodation (Regus) on part of an exclusion clause in its standard
terms of business. The part of the exclusion clause in question sought to
exclude liability “in any circumstances” for “loss of business, loss of
profits, loss of anticipated savings, loss of or damage to data, third party
claims or any consequential losses”. A further clause limited Regus’
liability for other losses, damages or expenses to £50,000.
The customer (Epcot) complained to Regus about defective air
conditioning in the office, and when this was not fixed by Regus, Epcot
stopped paying Regus the service charges due under the agreement.
, Regus brought proceedings against Epcot for the amounts due to it, and in
response, Epcot argued that the failure to provide air conditioning
amounted to a breach of contract and counterclaimed for loss of profits,
loss of opportunity to develop its business and distress, inconvenience
and loss of amenity.
In order to defeat part of Epcot’s claim, Regus had to show that the
Exclusion Clause was enforceable in particular that it was reasonable
under the Unfair Contract Terms Act 1977 (UCTA).
In a High Court judgment of May 2007, the court had ruled that although
in theory it was entirely reasonable for Regus to restrict damages for loss
of profits and consequential loss, the clause was unreasonable as a whole
as the exclusion was so wide that it effectively left Epcot without a
remedy for a basic service such as defective air conditioning. It was
therefore unenforceable, leaving Regus exposed.
Regus appealed on the grounds that the High Court judge had been wrong
to say that the Exclusion Clause was unreasonable under UCTA and that it
should be entitled to limit its liability in that way. The Court of Appeal
agreed with Regus and reversed the High Court’s ruling.
The purpose of UCTA is to protect contracting parties (particularly
consumers and business parties contracting on other business parties’
standard terms of business) from onerous contractual provisions such as
exclusion and limitation of liability clauses. UCTA imposes limits on the
extent to which liability for breach of contract, negligence or other
breaches of duty can be avoided in a contract.
Where a clause is contrary to the mandatory restrictions set out in UCTA
or is deemed by the court to be “unreasonable”, such a clause will be
unenforceable.
Amongst other restrictions, Section 3 of UCTA is particularly important in
the context of business to business contracts where the supplier is dealing
