Exclusion and Limitation Clauses

An exclusion clause prevents liability for a breach of contract.

A limitation clause sets an upper limit on liability for breach of contract.

Common Law Rules - ‘incorporation rules’

Is the term incorporated into the contract (actually part of the contract)? This can be incorporated in 3 ways:

  1. by signature

  2. by notice

  3. by a previous course dealings

Incorporation by signature

If the document is signed, then you agree to the exclusion clause, even if you did not read it.

  • L’Estrange v Graucoub - C had agreed to the document by signing for it, it does not matter that she did not read the document.

Exception 1: this does not apply where the claimant was misled or the other party lied.

  • Curtis v Chemical Cleaning - C was told the document was to exclude liability to damage to beads or sequins. In fact, the document excluded all liability for damage. C was misled so she was able to claim for breach of contract.

Exception 2: Lord Denning’s Red Hand Rule - if there is a nasty term buried in small print, this should be brought to the attention of the other party.

  • Interfoto v Stiletto - D borrowed photos from C but did not know about the late return fee. D ended up owing nearly £24k.

Incorporation by notice

Before acceptance, was the term brought to the attention of the person who would suffer from this term?

  • Olley v Marlborough Court - Cs were unable to agree to the exclusion clause since they were only notified about it after the contract was formed.

There is more difficulty where tickets are concerned:

  • Chapelton v Barry Council - After hiring deckchairs, exclusion clauses against accident or damage were on the back of the ticket. The clause was not valid since C only knew of the clause after the contract was formed and a ticket is not deemed a contractual document.

  • Thompson v LMS Railway - C was illiterate. The back of the ticket excluded liability for injury or damages on the journey. The clause was valid since there were notices around the station, enough had been done.

  • Thornton v Shoe Lane Parking Ltd - There was a clause excluding damage and personal injury on the premises of the car park. By this point, C only knew of the clause after the contract was formed.

Incorporation by a previous course of dealing between the parties

This will only apply where there has a been a ‘consistent course of dealing’ on the same terms and all of them included the exclusion clause.

  • McCutcheon v MacBrayne - C often used D’s ferries, sometimes he was asked to sign a risk note with an exclusion clause. A relative used the ferry but was not asked to sign the risk note. There was nothing consistent to assume the claimant knew that the exclusion clause was present, so this was not incorporated.

The contra proferentem rule

If there is doubt about the meaning of an exclusion/limitation clause (or any term of a contract), the court will interpret it least favourably against the person who introduced it and seeks to rely on it.

  • Houghton v Trafalgar Insurance - Company excluded liability where there was an accident where excess load is carried. C had a crash with too many passengers. Court held that ‘load’ was ambiguous.

However,

  • Transocean Drilling v Providence Plc - This rule should only be used if a term of a contract is one-sided and ambiguous. If the meaning of the words is clear the rule should not be used.

Statutory Controls

There are two important acts:

  • Unfair Contract Terms Act 1977

  • Consumer Rights Act 2015

The Unfair Contract Terms Act 1977

This only applies to contracts in business to business contracts.

  • s2(1) states that a business can’t exclude liability for negligently causing death or personal injury.

  • s2(2) states that a business can’t exclude liability for other forms of loss or damage unless reasonable to do so.