exemption clause
Clauses that limit or exclude liability . They are often used by parties to decide in advance who carries the risk if something goes wrong.
(explanation of the problem now):
However, in common law, courts became worried because these clauses were increasingly used in standard form contracts, where one party (usually a business) has much more bargaining power than the other. So courts started to scrutinise them more closely, especially when they were not truly agreed or understood by both sides.
To strengthen control over unfair clauses, Parliament introduced:
UCTA 1977 for business-to-business contracts, and
CRA 2015 for business-to-consumer contracts,
which limit or invalidate unfair exemption clauses.
B2B contracts
In B2B contracts, contracts are mainly seen as practical tools. Businesses use them to save time and to express their commercial agreement, and the law assumes that both sides are experienced and able to protect themselves, so the terms are presumed to be fair and reasonable.
B2C contracts
In B2C contracts. The contract is usually written by the business and imposed on the consumer, who has much less bargaining power. Because of this imbalance, the law does not assume the terms are fair or transparent, and consumers get much stronger legal protection.
Andrew Bros. (Bournemouth) Ltd v Singer & Co. Ltd
Andrew Bros bought what were described as “new Singer cars” from Singer.
The contract contained an exemption clause in Singer’s standard terms saying Singer was not liable for defects in cars sold.
However, one of the cars delivered had already been heavily used (it had high mileage), so it was not really “new.”
Singer argued that the exclusion clause protected them from liability.
Andrew Bros argued that the contract promised “new” cars, and the clause should not apply if what was delivered was not new.
The court said No — the exemption clause did not apply.
Because “new Singer car” was an express term of the contract, Singer could not use an exclusion clause to cover something that fell outside what was agreed.
A used car is not a “new” car, so the clause could not protect Singer.
Canada Steamship v The King
Canada Steamship leased a warehouse from the Crown.
Crown employees were negligent and caused a fire, destroying goods worth a lot of money.
The Crown tried to avoid paying by relying on an exclusion clause in the contract.
Did the clause clearly exclude liability for negligence?
The House of Lords said No — the Crown was still liable.
The clause did not clearly say it covered negligence, and there was no other clear wording to show that was the parties’ intention.
How courts decide if an exclusion clause covers negligence
Step 1:does the clause clearly mention “negligence”?
If the clause explicitly says it excludes liability for negligence then it works.
If it does not mention negligence -> step 2: Are the words wide enough to include negligence anyway?
the court asks:
Could this reasonably include negligence?
If no → the clause does not cover negligence.
If yes step3: Could the words cover something other than negligence?
If the wording could also apply to non-negligent causes (like accidents or contractual breaches),
the court assumes it was meant to cover those — not negligence.
So negligence is excluded from the exclusion .
Houghton v Trafalgar Insurance
Houghton had a car that was built to carry 5 people. One day he drove with 6 people in the car and had an accident.
His insurance contract said the insurer would not pay if the car was carrying “any load in excess of that for which it was constructed.”
The insurer refused to pay, saying the extra passenger was an extra “load”.
Does the word “load” in the exclusion clause include extra passengers, or does it only mean extra weight ?
The court said NO — the exclusion clause did not apply.
The word “load” was ambiguous. It could mean weight, not people.
Because the insurance company wrote the contract, the ambiguity was interpreted against them (this is the contra proferentem rule).
Curtis v Chemical Cleaning
Mrs Curtis took her wedding dress to a dry cleaner.
The receipt contained a clause saying the company was not liable for any damage.
Mrs Curtis asked what the clause meant. The assistant told her it only applied to damage to beads and sequins.
She relied on this and signed. The dress was then badly stained.
Can the dry cleaner rely on the exclusion clause, even though it was misrepresented to Mrs Curtis before she signed?
No. The exclusion clause was not effective.
Because the assistant misled Mrs Curtis about what the clause covered, the company could not rely on it.
When a clause is misrepresented, it cannot be enforced.
