Sometimes contract terms are considered to be so unfair to one of the contracting parties that the legislature or the courts have been prepared to intervene to prevent an injustice. This has tended to arise in the context of exemption clauses and these are controlled by the common law.

In some cases, one party to a contract may seek to avoid incurring liability for certain breaches of the contract, or may specify that their liability for such breach will be limited, usually to a certain amount in damages.

A clause which seeks to exclude all liability for certain breaches is called an exclusion clause. The term ‘exemption clause’ is commonly used to cover both limitation and exclusion clauses.

Modern judges like Lord Denning have expressed considerable disapproval of exemption clauses, which were frequently used by larger and more powerful contracting parties to impose harsh terms on smaller and weaker ones.

In general, the courts have found two ways to regulate exclusion clauses:

First, they may question whether a clause has actually been incorporated into the contract, in which case it is for the party seeking to rely on the clause to prove incorporation; and

Secondly, they may question whether the words used in the clause can be construed as covering the alleged breach.

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