Exclusion clauses

Exclusion clauses

Terms in a contract that can exclude or limit liability. In order to be valid the clause must be clearly worded and properly incorporated into the contract. The contra proferentem rule will apply.

In what ways can valid incorporation be done?

By signature, by reasonable notice, by previous course of dealing.

Signature

If a person signs a contract, they are bound by the terms, whether they read them or not- L’Estrange v Groucob.

Exception- If the person verbally explains it and it ends up being different to the one in the contract- Curtis v Chemical Cleaning. 

By reasonable notice

A clause can be valid if reasonable notice of its terms is given before the party enters into the contract.

The more serious the effect of the exclusion clause, the greater the effort should be to bring it to the parties attention before the contract is made- known as the “red hand rule”- Olley v Marlborough Court Hotel. 

Previous course of dealing

This occurs when parties regularly make the same type of contract and the terms of those contracts are consistent.

Exclusion clauses for goods

Section 31 CRA- a trader can NEVER exclude or limit liability in relation to S.9, S.10 or S.11.

Section 65- a trader can never exclude liability for death or personal injury resulting from negligence.

Exclusion clauses for services

Section 57 CRA- a trader can NEVER exclude or limit liability in relation to S.49 or S.52

Section 65- a trader can never exclude liability for death or personal injury resulting from negligence. 

Exclusion clauses in business to business contracts

Unfair Contract Terms ACT 1977 (UCTA):

A person cannot exclude liability for death or personal injury caused by negligence- S.2 (1).

In the case of other loss or damage, a person cannot exclude their liability for negligence except in so far as it is reasonable- S.2 (2).

It imposes a reasonableness test, the party who inserts the clause has to show it is reasonable in all circumstances. This is based on:

-What was known to the parties at the time the contract was made.

-The strength of the bargaining position of the parties relative to each other.