If it is established that an exemption clause has been incorporated into a contract, the courts will then check to see whether the clause actually covers the breach that has occurred. In doing so, they apply what is called the ‘contra proferentem’, which essentially means that where the words of an exemption clause are ambiguous, they will be interpreted in the way least favourable to the party relying on them.

Since parties seeking to exempt themselves from liability will frequently use unclear and ambiguous language in order to conceal their purpose, the contra proferentem rule can be a useful tool. This rule was applied in the case of Houghton v Trafalgar Insurance Co. (1954).

Technically, the contra proferentem rule applies to all exemption clauses but the courts tend to apply it less rigorously to those which merely limit liability, rather than exclude it completely.

Special applications of contra proferentem

The contra proferentem rule is applied particularly strictly where a party relies on an exemption clause to protect them from liability for negligence. This was the position of the Court of Appeal in White v John Warrick & Co Ltd (1953).

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