Chapter 11
Exclusion clauses:
Exclusion clause= a clause in a contract or a term in a notice which appears to exclude or
restrict a liability or legal duty which would otherwise arise.
Common feature of contracts-> takes a number of different forms.
Most common= those which seeks to exclude liability for breach of contract or for
negligence or which seek to limit liability to a specific sum.
Indemnity clause= one contracting party promises to indemnify the other for any liability
incurred by him in the performance of the contract.
11.1 Exclusion clauses: defence or definition?
Differing views regarding their essential nature.
Courts have traditionally seen exclusion clauses as performing a defensive function.
^ Provides a party with a defence
An exclusion clause as defining a party’s obligation.
^ If this view is accepted, the justification for subjecting exclusion clauses to distinct
regulation largely disappears because such clauses then become functionally
indistinguishable from every other term of the contract.
Argument that exclusion clause= defining a party’s obligation has been attacked by Adams
and Brownsword (1988) on the ground that it ignores ‘both the historical development of
the problem, and the realities of the situation.’
Historical development= growth in the use of standard form contracts has been
accompanied by a growth in the use of exclusion clauses.
Realities of the situation= such terms are offered on a ‘take it or leave it basis’-> imposed on
the weaker party. May take the rights away from the weaker party and nullify his
expectations rather than define the obligations of the parties.
^ But it is only by looking outside of the contract for the initial existence of these rights that
the exclusion clause can be said to take away the rights of the weaker party.
These rights and expectations have to exist outside of the contract as the contract as a
whole did not confer them upon the wear party.
How do we ascertain the scope of these rights and expectations? Public policy? The
defensive view of exclusion clauses don’t tell us.
We are not attempting to ‘eradicate the evil’ of exclusion clauses, but the existence of unfair
terms in a contract.
^ therefore the correct approach would be to deal with exclusion clauses as part of a general
doctrine of duress, inequality of bargaining power or ‘unconscionability’ and not by the
artificial and misleading process of subjecting exclusion clauses to distinct regulation on the
basis that they are a defence to a breach of an obligation.
The courts and parliament have generally treated exclusion clauses as a defence to a breach
of an obligation.
11.2 The functions of exclusion clauses:
They help in the allocation of risks under the contract.
Exclusion clauses can help reduce litigation costs by making clear the division of
responsibility between the parties.
Exclusion clauses:
Exclusion clause= a clause in a contract or a term in a notice which appears to exclude or
restrict a liability or legal duty which would otherwise arise.
Common feature of contracts-> takes a number of different forms.
Most common= those which seeks to exclude liability for breach of contract or for
negligence or which seek to limit liability to a specific sum.
Indemnity clause= one contracting party promises to indemnify the other for any liability
incurred by him in the performance of the contract.
11.1 Exclusion clauses: defence or definition?
Differing views regarding their essential nature.
Courts have traditionally seen exclusion clauses as performing a defensive function.
^ Provides a party with a defence
An exclusion clause as defining a party’s obligation.
^ If this view is accepted, the justification for subjecting exclusion clauses to distinct
regulation largely disappears because such clauses then become functionally
indistinguishable from every other term of the contract.
Argument that exclusion clause= defining a party’s obligation has been attacked by Adams
and Brownsword (1988) on the ground that it ignores ‘both the historical development of
the problem, and the realities of the situation.’
Historical development= growth in the use of standard form contracts has been
accompanied by a growth in the use of exclusion clauses.
Realities of the situation= such terms are offered on a ‘take it or leave it basis’-> imposed on
the weaker party. May take the rights away from the weaker party and nullify his
expectations rather than define the obligations of the parties.
^ But it is only by looking outside of the contract for the initial existence of these rights that
the exclusion clause can be said to take away the rights of the weaker party.
These rights and expectations have to exist outside of the contract as the contract as a
whole did not confer them upon the wear party.
How do we ascertain the scope of these rights and expectations? Public policy? The
defensive view of exclusion clauses don’t tell us.
We are not attempting to ‘eradicate the evil’ of exclusion clauses, but the existence of unfair
terms in a contract.
^ therefore the correct approach would be to deal with exclusion clauses as part of a general
doctrine of duress, inequality of bargaining power or ‘unconscionability’ and not by the
artificial and misleading process of subjecting exclusion clauses to distinct regulation on the
basis that they are a defence to a breach of an obligation.
The courts and parliament have generally treated exclusion clauses as a defence to a breach
of an obligation.
11.2 The functions of exclusion clauses:
They help in the allocation of risks under the contract.
Exclusion clauses can help reduce litigation costs by making clear the division of
responsibility between the parties.
