Exclusion Clause

What is an Exclusion Clause?

An exclusion clause is a term used in the law of contract to mean the restriction of the rights of parties to a contract. One of the contracting parties may use exclusion clauses in their written contract to exclude himself or herself from liability. For instance, an exclusion clause may state that one of the parties has no liability for breach of contract, or that the remedies for the breach of contract is limited to a specified extent.

Key Problems Associated with Exclusion Clauses

There are three problems associated with exclusion clauses. First, clauses recognise potential breaches of contract and limit the liability for such breaches of contract (Richards, 2006). It also allows one party to perform duties with reasonable care. Secondly, exclusion clause limits the amount of damages that can be claimed as a result of breach of contract (Richards, 2006). This may cause higher burden to be incurred by one party than the other. Lastly, the clause limits the time that an action for a claim can be implemented. Action for a claim should start within a specified period of time, after which the action ceases to be enforceable in law.

Incorporating an Exclusion Clause into a Contract

Exclusion clauses operate only if they are part of a contract. An exclusion clause can be incorporated into a contract in three ways: incorporation by signature, incorporation by notice, and use of previous dealings.

Incorporation by Signature

Incorporation by signature occurs when the clause is written in a document that has the signatures of both parties. If the signature is not included in the document containing the clause, the exclusion clause may be incorporated to the contract if the person relying on it takes reasonable steps to bring it to the attention of the other party (Richards, 2006). This can be illustrated by the case of L’Estrange v F Graucob Ltd whereby L’Estrange bought a cigarette machine in installments agreement from Graucob Ltd, represented by travelling salesmen. The agreement had an exclusion clause which stated that express or implied warranty or condition is excluded. When the machine failed, L’Estrange failed to pay subsequent installments and brought an action in court for the amount paid based in the premise that the item was not fit its purpose. Mr. Graucob argued that warranties were expressly excluded from the contract and duly signed by the plaintiff. The judge ruled that Graucob did not do any reasonable thing to bring the clause to the attention of the plaintiff, so the action was not enforceable.

Incorporation by Notice

An exclusion clause may also be incorporated into contract by notice. This is a general rule which suggests that an exclusion clause is incorporated into the contract if the party relying on it has taken reasonable steps to notify the other party about it (Richards, 2006). This is shown in Parker v South Eastern Railway (1877) whereby Parker left his bag at the railway station and paid for a ticket. In front of the ticket it was written “see back”. On the back the ticket stated that the company was not liable for items worth over £10. Parker’s bag worth more than £10 got lost and sued the company. The court ruled that the railway company should have taken reasonable steps to notify the customer about the clause written on the back of the ticket.

Incorporation by Previous Dealings

Lastly, the case of McCutcheon v David MacBrayne Ltd illustrates that exclusion clauses may be incorporated into a contract if the dealings of the two parties have previously been regular and consistent (Richards, 2006). However, bargaining power of parties and facts of the dealings should be considered in order to incorporate the clause into the contract.

  • Example of an Exclusion Clause

The exclusion clause written by Caleb in the exit of the garden states that the garden is not liable for death, injury or loss of property regardless of whether these were caused by negligence of the garden centre. The customers are not directed to the sign upon or before paying tickets. Therefore, the exclusion clause is not incorporated into the contract in any of the three mechanisms of incorporation stated above. It is not incorporated by signature because there was no document with the exclusion clause signed by customers. It was also not incorporated by means of notice because the garden centre did not take reasonable steps to notify the customers about the exclusion clause. Customers could only see the clause when they are leaving, when they might have already suffered out of negligence from the garden centre. Lastly, the clause may be incorporated into contract if a customer has gone there several times and has seen the clause on the exit several times in the previous dealings.

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