Exclusion Clauses
An exemption clause in a contract is a term which either limits or excludes a party’s liability for
abreach of contract. In order for an exclusion clause to be binding and operable upon the
parties, the clause must:
1. The clause must be incorporated into the contract as a term.
2. The clause must pass the test of construction.
3. The clause must not be rendered unenforceable by the statutory provisions in the Unfair
Contract Terms Act 1977 or the Consumer Rights Act 2015 (enacting the Consumer Rights Bill
2013-14).
Exclusion clauses and the freedom of contract
It can be suggested that exclusion clauses are nonsensical in the context of contract law;
why would you exclude a party’s liability for a promise they have made? However, it is
evident that the exemption clause is a vital tool in allocating the risk of contracts
between the parties and allows for commercial efficacy. Take the following example:
Party A delivers cargo on his one ship that makes him a moderate amount of money to
feed his family. Party B would like to deliver some expensive cargo on Party A’s ship on a
route that is notorious for storms and is a risky trip. Party B are a national multi-million-
dollar company. It makes sense in this context for Party A to be entitled to an exclusion
clause limiting their liability for damage to the cargo - Party A would not be able to
afford to replace the cargo, but Party B would be. Without an exclusion clause, Party A
would probably be unwilling to take on the commercially beneficial contract.
The courts are happy for parties to use exclusion clauses, and to restrict them would
undermine the freedom of parties to contract on terms they wish to. Nonetheless, the
law will interfere in some forms of contract will be examined later in this chapter.
Generally, except for those the law interferes with, the common law provides no rule
whereby an exclusion clause would be declared unenforceable on the grounds that it is
unfair or unreasonable - Photo Production Ltd v Securicor Transport Ltd [1980] AC 827.
Different types of exclusion clauses
Exclusion clauses can be created in a multitude of ways, and are able to exclude
whatever liability the parties to the contract wish to, except for those restricted by
legislation. Here are some examples of some common forms of exclusion clauses:
, • Clauses that exclude liability for anything included in the contractual obligations.
• Clauses that exclude liability for consequential loss regarding anything in the
contractual obligations.
• Clauses that limit the remedies available to the aggrieved party, by exclusion or
by setting a time limit on those remedies.
Requirement 1- Incorporation
Incorporation of a term into a contract was discussed in detail in the previous chapter,
terms. Therefore, a detailed exploration of this will not be required here, but you should
ensure that you have read the terms chapter before you read this chapter as an in depth
understanding of incorporation is vital to exclusion clauses. The three ways in which a
term may be incorporated are:
An exemption clause in a contract is a term which either limits or excludes a party’s liability for
abreach of contract. In order for an exclusion clause to be binding and operable upon the
parties, the clause must:
1. The clause must be incorporated into the contract as a term.
2. The clause must pass the test of construction.
3. The clause must not be rendered unenforceable by the statutory provisions in the Unfair
Contract Terms Act 1977 or the Consumer Rights Act 2015 (enacting the Consumer Rights Bill
2013-14).
Exclusion clauses and the freedom of contract
It can be suggested that exclusion clauses are nonsensical in the context of contract law;
why would you exclude a party’s liability for a promise they have made? However, it is
evident that the exemption clause is a vital tool in allocating the risk of contracts
between the parties and allows for commercial efficacy. Take the following example:
Party A delivers cargo on his one ship that makes him a moderate amount of money to
feed his family. Party B would like to deliver some expensive cargo on Party A’s ship on a
route that is notorious for storms and is a risky trip. Party B are a national multi-million-
dollar company. It makes sense in this context for Party A to be entitled to an exclusion
clause limiting their liability for damage to the cargo - Party A would not be able to
afford to replace the cargo, but Party B would be. Without an exclusion clause, Party A
would probably be unwilling to take on the commercially beneficial contract.
The courts are happy for parties to use exclusion clauses, and to restrict them would
undermine the freedom of parties to contract on terms they wish to. Nonetheless, the
law will interfere in some forms of contract will be examined later in this chapter.
Generally, except for those the law interferes with, the common law provides no rule
whereby an exclusion clause would be declared unenforceable on the grounds that it is
unfair or unreasonable - Photo Production Ltd v Securicor Transport Ltd [1980] AC 827.
Different types of exclusion clauses
Exclusion clauses can be created in a multitude of ways, and are able to exclude
whatever liability the parties to the contract wish to, except for those restricted by
legislation. Here are some examples of some common forms of exclusion clauses:
, • Clauses that exclude liability for anything included in the contractual obligations.
• Clauses that exclude liability for consequential loss regarding anything in the
contractual obligations.
• Clauses that limit the remedies available to the aggrieved party, by exclusion or
by setting a time limit on those remedies.
Requirement 1- Incorporation
Incorporation of a term into a contract was discussed in detail in the previous chapter,
terms. Therefore, a detailed exploration of this will not be required here, but you should
ensure that you have read the terms chapter before you read this chapter as an in depth
understanding of incorporation is vital to exclusion clauses. The three ways in which a
term may be incorporated are:
