Introduction To Exemption Clauses

Question 1

What is an exemption clause?

Answer 1

An exemption clause is a contractual term that purports to limit or exclude a liability that would otherwise attach to one of the contracting parties.

The obligations affected by an exemption clause may be contractual, tortious, or both.

Question 2

Where commercial parties are negotiating a contract…

Answer 2

…it is more common for a party to limit its liability, rather than exclude it.

Question 3

What will a limitation of liability do? Eg?

Answer 3

A limitation of liability clause will typically cap liability in relation to particular events at a particular sum.

For example, in a contract for the installation of a computer system, the supplier might want to limit its liability for any damage caused to the purchaser’s property as a result of its negligence during the installation process to the sum of £300,000

(meaning the purchaser cannot claim any losses beyond £300,000 in relation to such damage from such negligence).

Nevertheless, there might be certain kinds of loss or damage (such as loss of profits or damage caused by a computer virus) for which the supplier might seek to exclude its liability altogether.

The extent of these limitations and/or exclusions will often form an important part of the negotiations in a commercial transaction.

Question 4

What does ’exclusion clause’ refer to?

Answer 4

This suggests the type of exemption clause which excludes (rather than only limits) liability, although sometimes the expression is used in the same way as we will use the expression ‘exemption clause’ – to refer to clauses which limit or exclude liability

Question 5

When you are considering whether a party can rely on an exemption clause, you need to consider the following three points:

Answer 5

• Incorporation
• Construction
• Statutory Controls

Question 6

What do we mean by Incorporation?

Answer 6

Is the exemption clause part of the contract?

This depends on the ordinary principles governing the incorporation of terms, and these are not considered in this topic.

However, it is worth noting that much of the case law about incorporation and about giving ‘reasonable notice’ of clauses was created in the context of exemption clauses.

Question 7

What is meant by Construction?

Answer 7

Does the clause, as drafted, cover the alleged breach(es) and resulting loss?

Question 8

What must you ask yourself concerning Statutory Controls?

Answer 8

What is the effect on the clause of the Unfair Contract Terms Act 1977 and the Consumer Rights Act 2015?