Exclusion Clauses in Contracts

Introduction

Exclusion clauses are a common feature of professionally drafted contracts for use on the Internet. Such clauses partially seek to exclude or limit their liability under the contract by expressly stating that liability will not arise in a party or will be limited for a number or all defaults under the agreement on their part. Rules of interpretation of contracts state that exclusion clauses must be clearly expressed and unambiguous, or they will be ineffective; they are also construed against the party seeking to rely on them. Due to the nature of exclusion clauses, as a method of control, the Unfair Contract Terms Act 1977 (“UCTA”) regulates the use of such clauses in contracts. Due to the nature of exclusion clauses, as a method of control, the Unfair Contract Terms Act 1977 (“UCTA”) regulates the use of such clauses in contracts.

The exclusion clause must form part of the contract between the parties. In the case of Chapleton v Barry UDC [1940] 1 KB 532, it was held that the exclusion clause the defendant sought to rely on was ineffective as it was written on the back on a receipt and therefore did not form part of the contract. Thus whether such as clause does form part of the contract requires a legal analysis of the documents that form part of the contract, and those that do not, as it is a question of law and contractual construction.

Parties will be assumed to have knowledge of an exclusion clause which has existed as part of previous dealings between the parties, even where notice of the clause is not given on every occasion. The party seeking to rely on this must prove that there has been a consistent course of dealing for this to be inferred in future dealings where notice is not provided. In the case of Spurling (J) Ltd v Bradshaw [1956] 2 All ER 121 the exclusion clause was held to be effective, because even though the claimant had not received notice of the exclusion clause on that particular occasion, he was aware of it through his previous dealings with the defendants.

Unfair Contract Terms Act 1977 (“UCTA”)

UCTA is the main statutory provision which regulates exclusion clauses and can either render a term effective, ineffective or subject to the test of reasonableness. It applies to business liability as between businesses or a business and a consumer. Therefore, if parties are not acting in the course of a business, say for example a contract between two private individuals, they can exclude liability. UCTA applies to exclusion clauses in the course of a business in three situations:

1. Negligence

2. Consumer

3. Standard Term Contracts.

There are different views as to the purpose of exclusions clauses. On the one hand it could be argued that exclusion clauses are merely a device for defining the exact obligations of the promisor, however on the other hand it could be argued that they are used as a defence mechanism against any breach of contract. Whatever their purpose, provided they are constructed and incorporated properly in accordance with UCTA, they will be effective.