Interpretation Of Exemption Clauses
What are exemption clauses?
A term that has the effect of relieving liability in the event of breach of contract or committing a tort. Or
one clause in which it determines a party’s obligations in a very narrow way.
Hostility to Exemption Clauses
Can defeat the parties expectations, an unfair surprise, but the impact will likely not be so recognised
by unsophisticated parties.
They can be seen as disincentivising taking care, a “moral hazard”.
However…
We cannot say what the parties would reasonably expect given circumstances.
Device for allocating risks to the party best placed to deal with them.
Control of exemption clauses at common law
Judge-made rules that make it harder to rely on exemption clauses include:
• Rules on incorporation of unsigned notices
• Contra proferentem rule
• Presumption of narrow construction of exemption clauses
• Presumption against exclusion of liability for negligence
• Now-disapproved rule that a fundamental breach deprives the party in breach to rely on an
exemption clause.
Why is contra proferentem a limited role in commercial contracts
Often there are limitations of liability.
Clauses often go through an intensive process of back-and-forth negotiation.
Some charters are based on industry standard terms.
Contra proferentem means interpretation against the draftsman, where a promise or term is
ambiguous the interpreted meaning will be one that acts against whom provided the term.
However it will rarely be decisive as to the meaning of commercial contract’s terms, Not applicable to
a clause that equally favours both parties.
Exemption clauses: narrow construction
There is a principle, here, that argues that ambiguity in an exemption clause should be interpreted in
a way that gives it a narrower effect.
Unlike Contra proferentem, this principle can apply to mutual exemptions of liability.
This is based on the improbability that the parties intended to cut down remedies for breach of
important contractual obligations.
However it cannot justify imposing a strained meaning.
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What are exemption clauses?
A term that has the effect of relieving liability in the event of breach of contract or committing a tort. Or
one clause in which it determines a party’s obligations in a very narrow way.
Hostility to Exemption Clauses
Can defeat the parties expectations, an unfair surprise, but the impact will likely not be so recognised
by unsophisticated parties.
They can be seen as disincentivising taking care, a “moral hazard”.
However…
We cannot say what the parties would reasonably expect given circumstances.
Device for allocating risks to the party best placed to deal with them.
Control of exemption clauses at common law
Judge-made rules that make it harder to rely on exemption clauses include:
• Rules on incorporation of unsigned notices
• Contra proferentem rule
• Presumption of narrow construction of exemption clauses
• Presumption against exclusion of liability for negligence
• Now-disapproved rule that a fundamental breach deprives the party in breach to rely on an
exemption clause.
Why is contra proferentem a limited role in commercial contracts
Often there are limitations of liability.
Clauses often go through an intensive process of back-and-forth negotiation.
Some charters are based on industry standard terms.
Contra proferentem means interpretation against the draftsman, where a promise or term is
ambiguous the interpreted meaning will be one that acts against whom provided the term.
However it will rarely be decisive as to the meaning of commercial contract’s terms, Not applicable to
a clause that equally favours both parties.
Exemption clauses: narrow construction
There is a principle, here, that argues that ambiguity in an exemption clause should be interpreted in
a way that gives it a narrower effect.
Unlike Contra proferentem, this principle can apply to mutual exemptions of liability.
This is based on the improbability that the parties intended to cut down remedies for breach of
important contractual obligations.
However it cannot justify imposing a strained meaning.
1
