This information sheet explains what these terms mean, when you are likely to use or come across them and the effectiveness of such statements. Exclusion clauses, exemption clauses, disclaimers or risk warnings are not always effective in excluding liability of the person or entity relying on it.
Exclusion clauses are generally found in contracts. These types of clauses operate to exclude or restrict the rights of a party. For example, if a party to a contract wishes to limit its liability in the event that it breaches the contract, it will usually include an exclusion clause limiting the amount of damages that the other party can claim to a specified total. Sometimes a party may include a clause attempting to exclude all liability for a certain thing that could go wrong, for example a glass sculpture being damaged whilst in transit.
Exclusion clauses may also be called "exemption" or "exception" clauses. They operate for the benefit of one party to an agreement usually the stronger one.
Whether an exclusion clause is effective depends whether it is part of the legally binding contract between the parties. Generally, any term of a contract, including an exclusion clause, waiver or disclaimer, will be effective it the party relying on the contract can establish that the person has agreed to the terms of the contract. Signing a document is not the only way a contract can be formed as an agreement can be implied from the circumstances in which the parties are dealing with each other.
In circumstances where there is no formal signature of a contract the question may arise as to what are the contractual terms that the parties have agreed will apply to their relationship. Contract law has established that a party must have notice of a contractual term, such as an exclusion clause, at the time the contract is formed. Therefore that person must be aware of the existence of the exclusion clause at the time the contract is formed.
This can be done through "actual" or "constructive" notice. Where a person signs a contract, that person will be bound by the terms of a contract whether they choose to read the contract or not. While a signed contract provides the evidence of what are the terms agreed by the parties, where the agreement is to be implied from the circumstances, there can be arguments over where actual notice of the terms has been given or whether the party relying on the clause has done all that is reasonably necessary to bring it to the other party's attention.
The ACL has provisions that are directed to unfair, unconscionable, harsh or oppressive contractual terms. Exclusion clauses in online agreements are discussed in the next section. TOU and TOS often state that no responsibility will be taken for losses caused by reliance on the information supplied.
A term or condition disclaiming legal liability for losses caused by reliance on the information is likely to be effective where reasonable person would have notice of the disclaimer. A reader would be on notice and bound even though he or she had never read the disclaimer if a reasonable person would have seen it. A browsewrap agreement describes the situation where TOU or TOS can be viewed on a linked page such as via a button at the bottom of the home page but the user of the website is not required to click a button to acknowledge that he or she is accepting those terms and conditions.
A clickthru agreement describes when a purchaser of software or a subscriber to an online service must click a button before the software installation is completed or the online service can be accessed by the subscriber. Question 1 What is the difference between exclusion, limitation, and exemption clauses? A limitation clause is where a party to the contract seeks to limit his liability for certain breaches of the contract. An exemption clause is the term used to describe both exclusion and limitation clauses.
An exemption clause is the term used where either an exclusion or limitation clause has been upheld by the court. What is relevant to assessing reasonableness is a matter of fact in each case.
However, there are some general rules. Reasonableness is generally satisfied where there is a fully negotiated contract between parties of equal bargaining power Raiffeisen Zentralbank Osterreich AG -v- Royal Bank of Scotland A clause limiting the amount of money recoverable is more likely to be reasonable Ailsa Craig Fishing Co.
Ltd -v- Malvern Fishing Co. Ltd 14 than one excluding liability altogether. Similarly, the use of small print or unnecessarily convoluted drafting is likely to be unreasonable Stag Line Ltd -v- Tyne Ship Repair Group If an exclusion or limitation clause falls foul of UCTA, whether because it purports to exclude a type of liability which cannot be excluded, or it is not "reasonable", it will be of no effect.
The court must look at the clause as a whole. In other words, liability for the event in question will be completely uncapped, subject only to the usual rules regarding remoteness and causation.
On the other hand, no sanctions such as fines apply to anyone using an invalid clause. The problem of a clause being partly valid and partly invalid under UCTA is a difficult one with no clear-cut answer. Although this is a complex area, the practical implications are much simpler. The risk of an entire exclusion or limitation of liability clause being unenforceable can be minimised by drafting it, using sub-clauses, as a series of separate "terms" easily distinguishable from one another.
Avoid the use of a single, broad clause which addresses all issues together. UCTA does not extend to "international supply contracts" either. Broadly, these are contracts under which possession or ownership of goods passes and which envisage that goods will be carried between different states or those with offer and acceptance in different states. As a result, suppliers can be a lot bolder in excluding their liability under contracts for the cross-border supply of goods in comparison with providers of services section In addition, the key provisions of UCTA will not apply where English or other UK law only applies because that is the governing law chosen by the contracting parties.
So, if the contract includes an English governing law provision, but would otherwise have been governed by a non UK law, sections 2 to 7 and 16 to 21 will not apply section The first step is to consider whether the impact of UCTA can be minimised or even avoided altogether. Because standard terms or clauses will attract section 3 of UCTA and the reasonableness test for any restriction of contractual liability, consider whether a bespoke, individually negotiated contract may be a better way to address this.
In all cases, however, clear and simple drafting is important. A "blanket" exclusion which prevents, as opposed to merely limits, recovery of damages even for a serious default is not automatically ineffective. The broader the exclusion, though, the clearer the wording must be for it to be effective. Liability for warranties which have been given expressly should not be excluded. Liability should never be excluded for dishonesty e.
Under that second limb only loss that can reasonably be supposed to have been in the contemplation of both parties at the time the contract was made can be recovered. Whether an exclusion of "consequential loss" catches financial loss such as loss of profits depends on the circumstances of the contract in question.
In many cases such losses will be direct 25 for example where they can ordinarily be expected to flow from a breach and in some they will be indirect. Note, however, that losses which were outside the contemplation of the parties will be too remote to be recoverable in any event. One approach is to exclude identified, defined categories of loss e. However, this can produce tortuous drafting.
An alternative method is to accept liability for all losses, whether direct or indirect, but subject to a sensible financial cap. Defining contractual obligations more widely can assist in reducing the potential for a breach of contract, for example, agreeing to perform a contract within a range of dates rather than setting a specific date on which performance must take place, or promising to use reasonable endeavours rather than an absolute obligation.
Exclusion clauses can take a variety of forms. Rather than expressly excluding liability, some clauses seek to limit the type of loss which is recoverable or the remedies available. An example of such a clause would be a seller providing a buyer with a right of repair or replacement in respect of defective products rather than a right to reject the goods. Another possibility is to put a time limit upon the period in which defects may be notified or legal proceedings issued e.
Clauses like this are limitation rather than exclusion clauses and, as such, are not construed so strictly as blanket exclusions of liability. Nonetheless, care should be taken in standard form contracts to ensure that they are reasonable.
We bring together lawyers of the highest calibre with the technical knowledge, industry experience and regional know-how to provide the incisive advice our clients need. Either way, exemption clauses are emergency clauses meant to outline what happens to each party when it all goes wrong. Exemption clauses accomplish this purpose in several ways.
For example, a party can eliminate any liability for the use of the goods or services by the other party in a manner that is negligent or grossly negligent according to the terms of the contract.
Or, a party could exclude all incidental damages. However, the types of whole-scale exclusions can result in heated negotiation and are often limited to only the worst of situations.
Limited liability generally refers to a damages cap or minimum. These can be the most hotly negotiated portions of a contract, especially when included in master agreements.
However, they are included in almost every contract of importance. A minimum is an amount of damages that a claim needs to reach before the other party will assume liability for it.
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