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Contract law

Exclusion clauses

Often terms are included in written contracts in an attempt to exclude or
limit liability for a breach of contract. These terms are known as
exclusion clauses or exemption clauses.

The law has tended to look unfavourably on such clauses and has
developed various rules to protect weaker parties from those in a
stronger bargaining position whilst allowing freedom of contract.

Any exclusion clause will be interpreted strictly against the party
seeking to rely on it.

In order for an exclusion clause to be valid it must pass tests which
have been developed in two ways:

Common law tests

The exclusion clause will only be enforceable if has been properly incorporated into
the contract and if the wording of the clause covers the loss suffered by the claimant.

Incorporation

The clause needs to be an integral part of the contract. An exclusion clause can be
incorporated by:

 Signature

If the claimant has signed a document containing the clause then they will be
bound by the clause. This rule applies even if they have not read the document
(as long as the other parties do not misrepresent what the clause covers).

 Notice

If the defendant takes reasonable steps to bring the clause to the claimant’s
attention then the clause will be held to have been incorporated. This must
have happened at the time of the agreement or before.

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