Exclusion clauses can be highly contentious, so it is important that they are carefully drafted.
An exclusion clause seeks to exclude or restrict the rights of parties to a contract. Different rules apply dependent on whether it is a business to business or a business to consumer contract. With business to business contracts it is essential to ascertain whether the exclusion or limitation clause is caught by the Unfair Contract Terms Act 1977 (“UCTA”) or common law. UCTA will apply if the contract is based upon one parties’ standard written terms. If UCTA applies, you cannot exclude or limit liability for death or personal injury due to negligence, or liability for breach of the implied terms as to title goods, or for fraudulent misrepresentation. Under common law you cannot exclude or limit liability for a parties’ fraud/dishonesty. Under UCTA, other types of liability can be excluded if the “reasonableness” test is satisfied. Common law principles apply to bespoke business to business contracts which have been fully negotiated. In these cases, you have to consider if the exclusion clause has been incorporated into the contract and is drafted in a very clear way as such clauses are restrictively interpreted.
Exclusion clauses can be highly contentious. Therefore, it is important they are carefully drafted using clear words. We have listed our top tips for effective drafting, below:
Top Tips for effective drafting
Effective exclusion and limitation clauses should contact the following elements:
Clear statements that certain types of liability are not excluded.
- Separate and distinct exclusion and limitation clauses.
- Use clear language for all exclusion clauses.
- Be clear whether UCTA applies or not and draft accordingly.
- Specific exclusion clause for loss of profit.
- Clear and express exclusions of all indirect and consequential losses setting out what is indirect/consequential.
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At our Contract Law Update Forum event for In-house Lawyers, our panel of speakers including Simon Walsh & Clare Mackay highlighted best practice for negotiating and managing contracts. For more information about SA Law's next forum event, email firstname.lastname@example.org