Exemption Clauses in Contract Law

Exemption Clauses

Definition

• Exemption clauses are contractual terms that exclude or limit one party's liability for breach of contract, negligence, or other wrongdoing.

Types of Exemption Clauses

• Exclusion clauses: exclude liability for specific types of loss or damage.
• Limitation clauses: limit the amount of liability for specific types of loss or damage.

Effectiveness of Exemption Clauses

• Unfair Contract Terms Act 1977: restrictions on the use of exemption clauses in consumer contracts.
• Reasonableness test: exemption clauses must be reasonable to be enforceable.
• Notice: exemption clauses must be brought to the attention of the other party to be effective.

Unfair Contract Terms Act 1977

• Section 2(2): exemption clauses in consumer contracts are invalid unless they satisfy the reasonableness test.
• Section 11: exemption clauses in non-consumer contracts are subject to the reasonableness test, but can be enforced if reasonable.

Common Law Rules

• Contra proferentem: ambiguous exemption clauses are construed against the party seeking to rely on them.
• Fundamental breach: exemption clauses may not protect against fundamental breaches of contract.

UCTA and Common Law Interaction

• UCTA prevails: if a exemption clause is invalid under UCTA, it cannot be enforced, even if it would be valid under common law rules.
• Common law rules apply: if a exemption clause is valid under UCTA, common law rules (e.g. contra proferentem) can still apply to its interpretation.