The Exclusion clauses are generally used by a contracting party whose intention is to totally exclude liability arising from certain contractual breaches. On the other hand, a limitation clause is used a contracting party to limit liability arising from certain contractual breaches as opposed to excluding the liability. While the motive of coming up with these clauses was good, the clauses have been a subject of abuse by most contractors at the detriment of the consumers (Finch, E, 2018 p. 98-100). The oppression of innocent consumers is what then led to the enactment of the Unfair Contract Terms Act of 1977 which seeks to limit the use of exclusion and limitation clauses where they are detrimental to the consumers. Courts have also been very alert and creative in ensuring that unfair contract terms are not used with the intention of exploiting innocent consumers. (Adams, A., 2016 p. 130, 131)
The laissez faire principles used in contract law during the golden age simply connoted that contractual freedom should be accorded to the parties to the contract. This meant that there should be less or no interference by the government with the contractual process between the parties (McKendrick 2014, p. 62). In the 20th century however, with the rise in the exploitation of consumers there was need for the protection of the consumers by the government. It is this concern that has then led to striking a balance between contractual freedom and protection of the consumers in the 21st century. The quote is relevant in sense that while a contract is meant to be an agreement between two people, the government bears the ultimate responsibility of ensuring that innocent parties are not exploited. This is the very essence of limiting the use of exemption clauses as demonstrated by case laws below.
Several mechanisms have been devised by the courts to limit the use of Exemption clauses (Exclusion and limitation clauses). In the case of Houghton v Trafalgar Insurance Co. Ltd (1954) 1 QB 247, the Queen’s Bench devised the contra proferentum rule as a means of interpreting exemption clause. The rule stipulates that, where a contractual term is ambiguous or uncertain, the same should be interpreted as against the party seeking to rely on it. In short, exclusion and limitation clauses beings terms of a contract will be interpreted against the party relying on them where they are ambiguous (McKendrick 2014, p. 104). This means that they cease to operate.
Secondly, courts are very reluctant in giving force to exemption clauses where they purport to exclude or limit liability beyond contractual matters. For example, an exclusion clause seeking to exclude negligence will not be entertained by the courts. In the case of Canada Steamship Lines v The King (1952) AC 192, the court provided certain tests that should be in dealing with exemption clauses purporting to exclude negligence. First, since the role of the court is not to interfere with the contractual freedom of the parties, where a term expressly excludes negligence it will be valid. However, where an exclusion clause fails to expressly exclude negligence but purport to exclude damage which would be considered as negligent damage, such a clause ceases to operate. In the case Photo Production Ltd v Securicor Transport Ltd 1980 AC 827 the House of Lords held that the Docterine of Fundemental breach was not pertinent here, and that the case involved the construction of the agreement. The avoidance provision did on the actualities, cover the harm being referred to and in this manner Securicor were not at risk for the harm (Adams, A., 2016 p. 131-134).
Additionally, courts are also alert in stopping parties who purport to use exclusion and limitation clauses to defeat oral agreements. In the case of J Evans ; Son (Portsmouth) Ltd v Andrea Merzario Ltd 1976 1 WLR 1078, the court held that an exemption clause which contradicts an oral agreement is null and void. In brief, courts will give priority to the terms of an oral contract as opposed to the exclusion clause and thus rendering the latter inapplicable.
Courts will also not give force to exemption clauses acquired by way of fraud and misrepresentation. In the case of Curtis v Chemical Cleaning and Dyeing Co 1951 1 KB 805, the court was of the opinion that where a party to a contract misrepresents the other as to the effect of the clause, such an exclusion clause ceases to operate in favor of the party seeking to rely on it (Peel 2015, p. 99). This is used as a measure of ensuring that there is a meeting of the mind on all the terms of the contract before the contract can become fully enforceable.
Also, an exclusion or limitation clause will only be valid if it does not infringe on other statutory provisions. Particularly, the Consumer Rights Act 2015 and the Unfair Contract Terms Act of 1977, legislate on which exemption clauses are permissible and the ones that are not (Richards 2006, p 133). An exemption clause that does not adhere to these two legislative instruments will thus lack the force of law. Exclusion clauses that are not used in the appropriate manner have the potential to damage the nature of contract. Being more specific exclusion clauses may remove responsibiliteies underlined in the contrat or vindicate the defendent from culbability completetly. (Maharaj, K 2012 page 638-639). In the case of R;B Custom Brokers Co Ltd v United Dominions Trust Ltd 1998 1 WLR 321 it was held that the claimant had entered into the contract as a consumer and therefore was covered by the UCTA meaning the excluded warrenty of the defendant could not be excluded through the exclusion clause.
However exemption clauses can be useful, frequently enclosed in a contract will be an exemption clause to exclude or limit the liability of one party in contract in the event of a breach of contract. . In the case of Thompson v London, Midland and Scotland Railway Co 1930 1 KB 41 , the Court of Appeal held that the clause was incorporated into the contract. The applicant was thus unsuccessful in her claim for damages. This was because there is solely a demand to require reasonable steps to bring the clause to the attention of a reasonable person. There was no duty to make sure that each individual was tuned in to the clause. This case shows an example of where a company is being sued for damages even though they have an exclusion clause that excludes them from liability (E-law Sources). As shown above this case was ruled in favour of the defendant however most cases do not turn out like this and there is a clear prejudice against parties who put an exclusion clause in their contract.
From the above discussion, it is thus plausible to conclude that despite the contractual freedom that parties to a contract enjoy, the courts will interfere with the enforceability of certain exclusion and limitation clauses where they seek to exploit innocent consumers. Generally it’s unfair as defendants firms solely depend upon exemption clauses to limit its liability in the event of something going wrong. In the courts when exemption clauses are removed from the contract this can be very daaging to the defendant firm especilly if they were not trying to exploit the other party, usually they are trying to limit or exclude liabiltiy if part of the contract goes incorrectly