Definitive guide to exclusion and limitation clauses


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This presentation was designed and delivered as a half-day workshop by Sarah Fox of 500 Words Ltd. To ask Sarah when the course is next running contact her or go to her website

1. "An effective contract should set out the common and agreed rules, helps define, goals and how to achieve them, states the agreed mechanism for managing risk and reward and lays down the guidelines for resolving disputes" CIC Guide to Project Partnering. Exclusion clauses affect the risk & reward balance.

2. The course structure

- looking at your client's objectives (begin with brief),
- evaluating the other options for limiting liability and protecting against risk (unlock the strategy),
- really understanding how to meet your client's brief and strategy from a legal perspective (investigating, interpreting and implementing);
- making sure the clause complies with legal restrictions (lightening the load)
- reviewing whether your strategy was successful (deliver and debrief)

3. You need to consider what your client really wants.

4. Exclusions are a contract tool for allocating risk. Exclusions must be contractual, refer to an existing or potential liability, between parties to a contract, arising from breach of contract or negligence. Exclusion and limitation clauses can be definitive (ie preventing a liability) or defensive (ie minimising or avoiding a liability which has arisen).

5. Wide clauses cover more liabilities but are often unreasonable and therefore unenforceable; narrow clauses are more reasonably but cover fewer liabilities.

6. Investigating clauses means considering special cases such as set-off, fundamental breach, third parties. The only one worthy of review is the negligence rules for exclusions under Canada Steamship.

7. The courts have moved from strained construction of exclusion and limitations (before UCTA 1977 in the UK and then UTCCR 1999) to a more purposive approach. See Photo Production and Felton v Liverpool. Interpretation involves three rules: against the proposer (contra proferentem), strict interpretation of exclusions and using case law precedent (stare decisis).

8. Implementation often means a form of incorporation - signature, notice or course of dealing. In construction contracts, you also need to consider incorporation by reference.

9. UCTA 1977 applies to business to business contracts (unlike UTCCR) and makes clauses either void or only enforceable if reasonable. It is not possible to use a blue pencil to separate reasonable and unreasonable elements in a clause. Watford v Sanderson.

10. Standard form construction contracts can be standard terms of business (ToB) but are often not the other party's standard ToB as required by the English/Welsh version of UCTA. See BFP v Compair Reavell

11. De-brief involves considering cases on interpretation.

This presentation does not contain all relevant clauses and is based on English law principles.

Published in: Law, Technology, Business
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Definitive guide to exclusion and limitation clauses

  1. 1. Whats MyExposure?A Definitive Guide toExclusion & Limitation Clauses Image: renjith krishnan /
  2. 2. Begin with Brief Unlock Strategy Investigate, Interpret & Implement Lighten the Load Deliver & De-briefLettering by Gyongy Laky; Photographed by Dwight EschlimanImage New York Times, 20 April , 2008
  3. 3. What do Ireally want ? Image: © LighttheSpark 2012
  4. 4. Unlock the Strategy Avoid Transfer Allocate Define Share DefendImage: xedos4/
  5. 5. Unlock the Strategy Avoid Transfer Allocate Define Share DefendImage: xedos4/
  6. 6. The Drafters Dilemma?
  7. 7. Investigate
  8. 8. Interpret1) Against proposer2) Strictly3) With precedents
  9. 9. Implement Use and MisuseImage: renjith krishnan /
  10. 10. Lighten the Load Unreasonable, ineffective or void?
  11. 11. No blue pencil
  12. 12. Standard terms of business?Reasonable?
  13. 13. Deliver and De-brief