BetterLawNotes-5 (2)


What are exclusion clauses?

For our purposes, an exclusion clause is a term of the contract which seeks to exclude liability which would otherwise arise on a breach of contract. A limitation clause seeks to limit, rather than wholly exclude, such liability. Examples are:

The seller accepts no liability for any loss resulting from late delivery of the goods.

The supplier’s liability for any loss or damage (other than personal injury or death) arising out of any failure to supply the service with reasonable care and skill shall not exceed the contract price.

Under no circumstances shall the company be responsible for any injurious act or default by any employee of the company unless such act or default could have been foreseen and avoided by the exercise of due diligence on the part of the company as his employer.

The Use and Abuse of Exclusion Clauses

The use of exclusion clauses in contracts presents the courts with something of a dilemma. On the one hand, the general principle is that English law leaves the parties free to agree whatever terms they choose: the courts do not make or re-make the contract for them. And, certainly, exclusion clauses can serve a useful function for both parties. A good example is provided by Photo Production Ltd v Securicor Transport Ltd [1980] AC 827..

On the other hand, the power to exclude liability may be abused, particularly where one party is in a much stronger bargaining position than the other. Left unchecked, there is a risk that the defendant’s use of exclusion clauses may leave the claimant with no remedy when the defendant’s performance falls far short of what the claimant reasonably expected.

Because of this, English law has a long history of recognising restrictions or controls on the use of exclusion and limitation clauses. These controls arise under statute and at common law. While the former are probably the more significant these days, the latter should not be overlooked. And, it is the common law controls that we will look at first

Establishing Liability for Breach of Contract

Before doing so, however, we will first focus on liability for breach of contract itself – ie, the very thing that an exclusion clause seeks to exclude. In order to understand and apply the various rules and principles concerning exclusion and limitation clauses, it is important to be clear as to how contractual liability arises in the first place.

Suppose that C has a contract with D and C claims that because of the way that D has performed the contract, C has suffered a particular loss or damage. To establish that D is contractually liable for that loss, C will have to:

(1) identify the loss or damage which C has suffered;

(2) identify the term, or terms, of the contract, the breach of which might have caused that loss;

(3) establish whether, on the facts, that term has been breached by D; and

(4) establish whether, on the facts, that breach caused the loss which C has suffered.



One way in which the courts regulate the use of exclusion and limitation clauses is through the application of the rules on incorporation. Generally speaking, unless the clause is incorporated as a term of the contract (ie, unless it was included in the offer which the offeree accepted), it will not be effective to exclude or restrict the liability that would otherwise arise under the contract.


Where the clause is contained in a signed contractual document, the party signing the document will generally be bound by the clause whether or not she actually read the document before signing it.

L’Estrange v Graucob [1934] 2 KB 394

• C ran a cafe and wanted to buy a cigarette machine from D.

• C signed, without reading, a document headed ‘Sales Agreement’ which contained, in small print, a clause which excluded, inter alia, any implied warranties.

• C subsequently claimed damages for breach of an implied warranty that the machine was reasonably fit for the purposes for which it was required.

• The Court held that the claim failed as C was bound by the exclusion clause.

L’Estrange v Graucob has been described as establishing ‘an important principle of English law which underpins the whole of commercial life; any erosion of it would have serious repercussions far beyond the business community’.* Nevertheless, like any rule or principle, it has its limits. Hence, the defendant must be able to show that the document which the claimant signed was a contractual document, ie, one which the claimant could reasonably be expected to realise contained the terms of the contract.

* Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386 at [43] (Moore-Bick LJ).

Grogan v Meredith [1996] CLC 1127

• C claimed damages from D in respect of machinery hired out by D to T under the terms of a written hire agreement.

• At the end of the first and second weeks, T’s site manager signed a timesheet at the bottom of which was printed ‘All hire undertaken under CPA conditions’.

• One of the C.P.A conditions, which had not been specifically incorporated in the written hire agreement, entitled D to an indemnity from T in respect of damages payable to C.

• The Court held that the relevant CPA condition had not been incorporated into the contract between D and T.


Where the exclusion clause is not in a signed contractual document, the party seeking to rely on the clause must show that he took reasonable steps to bring the provision to the other party’s notice. Various factors will determine what amount to reasonable steps.

How Onerous and/or Unusual is the Clause?

Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433

• The defendant hired some photographic transparencies from the claimant.

• One of the terms of the written agreement specified that any transparencies not returned within 14 days would incur a daily holding fee of £5 per transparency per day.

• The defendant, who had not read the term, held 47 of the transparencies for a total of 28 days.

• The CA held that the claimant could not recover the holding fee.

AEG (UK) Ltd v Logic Resource Ltd [1996] CLC 265

A majority of the Court of Appeal held that a clause requiring the buyer to return defective goods to the seller at his own expense was not incorporated as it had not been fairly and reasonably drawn to the buyer’s attention.

Is the Clause Contained in a Contractual Document?

Chapelton v Barry UDC [1940] 1 KB 532

• C went to the beach with a friend.

• By the side of a cafe there was a pile of deckchairs belonging to the Council and a sign stating that the deckchairs were available for hire at a rate of 2 pence per 3-hour session.

• The notice asked the public to obtain tickets from an attendant and retain them for inspection.

• C took two chairs from the attendant and two tickets.

• When C sat down on his chair, the chair collapsed injuring him.

• C sued the Council who sought to rely on words printed on the back of the ticket excluding any liability on the part of the Council for injuries sustained by the public.

• C had glanced at the tickets before putting them in his pocket but had not realised that the tickets contained any conditions.

• The Court of Appeal held that the words were ineffective to exclude the Council’s liability to C.


Olley v Marlborough Court Ltd [1949] 1 KB 532

• O checked in at D’s hotel.

• A notice displayed in O’s room purported to exclude liability for stolen property.

• O had some property stolen and brought an action against D.

• The CA held that D could not rely on the exclusion clause displayed in O’s room.

Incorporation by Course of Dealing

It may be that in the context of a particular transaction, one party failed to take reasonable steps to bring an exclusion clause to the other party’s attention before that transaction was entered into. However, the provision may nevertheless be held to have been incorporated into the contract by virtue of the parties’ previous course of dealings.

J Spurling Ltd v Bradshaw [1956] 1 WLR 461

• D had dealt with C, which ran a warehousing business, for many years.

• D delivered a consignment of eight barrels of orange juice to C for storage.

• A few days later D received from C a document acknowledging receipt and referring on its face to conditions printed on the reverse.

• When D came to collect the barrels, he found that they all been damaged and that some were empty.

• In an action against D by C for non-payment of the contract price, D counter-claimed that C was liable for the damage to the barrels.

• C sought to rely on an exemption clause contained in the printed document.

• The CA held that C was entitled to rely on the clause notwithstanding that it was contained in a document received by D after the contract had been made.

Note that the dealings must have followed a consistent course for this principle to apply:

McCutcheon v MacBrayne [1964] 1 WLR 125 (HL) (Sc)

• McCutcheon asked McSporran to have McCutcheon’s car shipped on MacBrayne’s ferry.

• At MacBrayne’s offices McSporran paid the appropriate fare and was given a receipt which he placed in his pocket without reading.

• The ferry carrying the car sank due to MacBrayne’s negligence, and the car was lost.

• McCutcheon brought an action against MacBrayne for the value of the car.

• MacBrayne sought to rely on a clause in its standard conditions that goods were carried at the owner’s risk.

• The conditions were contained in MacBrayne’s ‘risk notes’ which customers were ordinarily asked to sign before goods were accepted for carriage.

• On this occasion the MacBrayne employee had forgot to ask McSporran to sign a risk note.

• The House of Lords held that the conditions were not incorporated in the contract and that MacBrayne was liable for the value of the car.

Trade Practice

A similar idea to the consistent course of dealing principle underlies another exception to the approach adopted in Olley v Marlborough Court.

British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd [1975] QB 303

• IPH needed to hire a crane urgently and arranged over the telephone for one to be supplied by BCH.

• After the crane had been delivered, BCH sent out a printed form to be signed by IPH containing details of the hiring and their standard conditions.

• Before the form was signed by IPH the crane sank in soft ground.

• The Court of Appeal held that BCH’s conditions had been incorporated, despite there being no sufficient course of dealing between the parties.

Contrast the outcome on the British Crane Hire case with the following:

Scheps v Fine Art Logistic Ltd [2007] EWHC 541 (QB)

• C arranged for the transportation and storage by D of a valuable sculpture he had just acquired for around £25,000.

• D put the sculpture in storage at its own premises, but it was subsequently lost.

• D argued that under its standard terms and conditions its liability for the loss of the sculpture was limited to a sum a little under £600.

• Relying on the British Crane Hire case, D submitted that its standard terms had been incorporated in to its contract with C as it was ‘usual in the transport and storage trade for services to be provided on standard terms and conditions that limit liability and that the Claimant was aware of this as a result of his considerable experience of arranging for the transport of works of art’ (at [10] (Teare J)).

• But Teare J held that D’s T&Cs had not been incorporated.


An additional control device is that of construction or interpretation. Does the exclusion clause, properly construed, apply to the liability which has (or which, but for the clause, would have) arisen? In order for the defendant to exclude or limit liability which would otherwise arise under the contract, he must use clear words to do so. An analogous principle is the contra proferentem principle which holds that an exclusion clause will be construed against the party relying on it. Strictly, it seems, the contra proferentem principle only applies where the clause is ambiguous. The requirement for clear wording, however, applies generally.

The following two cases demonstrate the need for clear wording:

Andrews Bros (Bournemouth) Ltd v Singer & Co Ltd [1934] 1 KB 17

• An agreement provided that C would buy from D 285 ‘new Singer cars’ but that ‘all conditions, warranties and liabilities implied by statute, common law, or otherwise are excluded’.

• One car was delivered with an odometer reading of 550 miles.

• C sought damages for breach of contract.

• D argued that liability for breach of the term, implied under s 13 SGA 1893, that the car should correspond to its description as a ‘new’ car, was excluded under the agreement.

• The CA held that C was entitled to damages as the term ‘new Singer cars’ was an express, and not an implied, term. As such, liability for the breach which had occurred was not covered by the exclusion clause.

KG Bominflot Bunkergesellschaft für Mineraloele mbH & Co v Petroplus Marketing AG, The Mercini Lady [2010] EWCA Civ 1145

• A clause in a contract for the sale of gasoil provided that ‘[t]here are no guarantees, warranties or representations, express or implied, [of] merchantability, fitness or suitability of the oil for any particular purpose or otherwise which extend beyond the description of the oil set forth in this agreement.’

• The CA held that the clause was not effective to exclude liability for breach of the term implied by s 14(2) of the Goods Act 1979 as that term was a condition and not a guarantee, warranty or representation.

Excluding or Limiting Liability for Negligence

The courts seem to have been particularly reluctant to give effect to clauses which purport to exclude fault-based liability. Their approach can be explained on the ground that ‘it is inherently improbable that one party to the contract should intend to absolve the other party from the consequences of the latter’s own negligence’.

It is important to note though that difficulties arise only in those cases where the clause does not explicitly mention ‘negligence’. Where the clause does expressly refer to negligence, then the court will construe it as applying to negligence.

In the past the courts have tended to approach the problem where a party claims that a clause which does not expressly refer to negligence nevertheless covers negligence by first asking whether the clause might relate to a liability other than negligence. If there is some other liability apart from negligence to which it might apply, the court may conclude that it does not extend to negligence. A good example is provided by White v Warwick.

White v John Warwick & Co Ltd [1953] 1 WLR 1285

• C hired a carrier tricycle from D.

• The hire agreement stated that D was not to be liable for any personal injuries suffered by C.

• The trike was faulty and, as a result, C was injured.

• The CA held that the clause only excluded D’s contractual liability (ie, its obligation to supply a machine which was reasonably fit for the purpose for which it was required).

• It followed that the clause did not exclude D’s liability in tort and D would be liable if negligence were established (the judge had made no finding as to negligence).

Nevertheless, even where negligence is the only liability to which the clause can apply, the court may conclude that it does not so extend:

Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71

• C telephoned D’s garage to arrange for his car to be repaired.

• While C’s car was in the garage, a fire broke out due to D’s negligence and the car was badly damaged.

• D sought to rely on a clause which stated that ‘The company is not responsible for damage caused by fire to customer’s cars on the premises’.

• The CA held that, assuming the clause was incorporated, its wording was not sufficiently clear to exclude liability for negligence.

But it is important to remember that there is no rule that a clause which does not expressly refer to negligence cannot be construed so as to exclude liability for negligence. See, eg:

Rutter v Palmer [1922] 2 KB 87

• C left his car at D’s garage so that D could find a buyer for it.

• One afternoon, one of D’s driving staff was driving the car to a prospective purchaser, when the vehicle was involved in a collision.

• The judge subsequently found that the collision was caused by the negligence of D’s servant.

• C’s action against D failed.

• The CA held that a clause in the contract which stated that customers’ cars were driven by D’s staff at the customers’ sole risk protected D from liability for the negligence of his staff.

While it is difficult to reconcile all the cases, it seems, following the enactment of the Unfair Contract Terms Act 1977 and the Consumer Rights Act 2015, that the courts are now more willing to construe an exclusion clause as applying to liability for negligence notwithstanding that the clause does not expressly refer to negligence or fault, even where there is some other liability to which it may attach.

HIH Casualty & General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6

• Clauses excluding liability for misrepresentation and non-disclosure in an insurance contract made no express reference to negligence.

• It was submitted that the clauses should be construed as applying only to liability for innocent misrepresentation and non-disclosure.

• The HL held that, properly construed, the clause did exclude liability for negligence.


It is important to emphasise that at common law the courts have no general power or discretion to strike down an exclusion or limitation clause simply because the court thinks it is unfair or unreasonable. Indeed, it is clear that at common law a defendant can exclude his liability for a deliberate breach on his part (provided he uses clear wording). See for a recent example, Mott Macdonald Ltd v Trant Engineering Ltd [2021] EWHC 754 (TCC).

Nevertheless, it is worth mentioning two restrictions which do apply at common law.

Excluding Liability for Fraud

As a matter of policy, a party cannot exclude or restrict liability for his own fraud.

HIH Casualty & General Insurance v Chase Manhattan Bank [2003] UKHL 6

‘There is no doubt that a party cannot contract that he shall not be liable for his own fraud’.

But note that a party can in principle exclude liability for a third party’s fraud, eg, the fraud of an employee.


A party will not be able to rely on an exclusion clause if its effect has been misrepresented to the other party.

Curtis v Chemical Cleaning & Dyeing Co [1951] 1 KB 805

• C took her dress to D’s cleaning company be cleaned.

• C signed a document containing a clause excluding D from liability for damage to the clothing.

• C was told by D’s assistant that the clause only related to specific risks such as damage to beads and sequins.

• When C collected her dress, it was badly stained.

• The CA held that D was liable for the damage: D could not rely on the exclusion clause because C had been induced to sign the form by the assistant’s misrepresentation.

Statutory Controls on the Use of Exclusion Clauses

The two principal statutes dealing with contractual exclusion clauses are the Unfair Contract Terms Act 1977 and the Consumer Rights Act 2015.


Excluding Liability for Loss or Damage Resulting from Negligence

S 2 Negligence liability

(1) A person cannot by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict his liability for death or personal injury resulting from negligence.

(2) In the case of other loss or damage, a person cannot so exclude or restrict his liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness.

(3) Where a contract term or notice purports to exclude or restrict liability for negligence a person’s agreement to or awareness of it is not of itself to be taken as indicating his voluntary acceptance of any risk.

Excluding Liability for Breach of the Implied Terms under the Sale of Goods Act

(1A) Liability for breach of the obligations arising from –

(a) section 13, 14 or 15 of the [Sale of Goods Act 1979] (seller’s implied undertakings as to conformity of goods with description or sample, or as to their quality or fitness for a particular purpose) . . .
cannot be excluded or restricted by reference to a contract term except in so far as the term satisfies the requirement of reasonableness.

Exclusion Clauses Contained in Written Standard Terms of Business

(1) This section applies as between contracting parties where one of them deals . . . on the other’s written standard terms of business.

(2) As against that party, the other cannot by reference to any contract term –
(a) when himself in breach of contract, exclude or restrict any liability of his in respect of the breach; or
(b) claim to be entitled –

(i) to render a contractual performance substantially different from that which was reasonably expected of him, or
(ii) in respect of the whole or any part of his contractual obligation, to render no performance at all,

except in so far as (in any of the cases mentioned above in this subsection) the contract term satisfies the requirement of reasonableness.

African Export-Import Bank v Shebah Exploration and Production Co Ltd [2017] EWCA Civ 845

C brought a claim to enforce a debt of around $150m which it claimed D owed it under a finance agreement. In its defence and counterclaim, D alleged that it had claims against C amounting to some $1bn and that it was entitled to set off these amounts against the sum claimed by C. In response C sought to rely on a clause in the finance agreement which provided that all payments due under the agreement were to be made without set-off or counterclaim. D argued that, by reason of s 3 of UCTA, this clause would only be valid if it satisfied the requirement of reasonableness under s 11 of UCTA. The judge gave summary judgment for C on the ground that D did not have a realistic prospect of establishing at trial that it had been dealing on C’s written standard terms of business and, that as such, the clause was not subject to the requirement of reasonableness under s 3 UCTA. The CA dismissed D’s appeal.

Longmore LJ (with whom Henderson LJ agreed):

‘[18] Before the Act can be held to apply and require an inquiry into the reasonableness of any particular term, the party relying on the Act must establish . . . that: (i) the term is written; (ii) the term is a term of business; (iii) the term is part of the other party’s standard terms of business; and (iv) that the other is dealing on those written standard terms of business.’

‘[20] The third requirement that the term is part of the other party’s standard terms of business means that it has to be shown that that other party habitually uses those terms of business. It is not enough that he sometimes does and sometimes does not. Nor is it enough to show that a model form has, on the particular occasion, been used; the party relying on the Act has to show that such model form is habitually used by the other party.’

‘[21] The fourth requirement is that the deal must be done on the written standard terms of business. That raises the question whether the Act applies in cases where there has been negotiation between the parties the result of which is that some but not all the standard terms are applicable to the deal . . .’

[25] ‘it is relevant to inquire whether there have been more than insubstantial variations to the terms which may otherwise have been habitually used by the other party to the transaction. If there have been substantial variations, it is unlikely to be the case that the party relying on the Act will have discharged the burden on him to show that the contract has been made “on the other’s written standard terms of business”.

[36] ‘There is . . . no requirement that negotiations must relate to the exclusion terms of the contract, if the Act is not to apply.’

The Test of Reasonableness

S 11 The "reasonableness" test

(1) In relation to a contract term, the requirement of reasonableness for the purposes of this Part of this Act . . . is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.
(2) In determining for the purposes of section 6 . . . above whether a contract term satisfies the requirement of reasonableness, regard shall be had in particular to the matters specified in Schedule 2 to this Act; but this subsection does not prevent the court or arbitrator from holding, in accordance with any rule of law, that a term which purports to exclude or restrict any relevant liability is not a term of the contract.

Additional Factors Affecting Reasonableness

Schedule 2 ‘Guidelines’ For Application of Reasonableness Test

The matters to which regard is to be had in particular for the purposes of [section 6(1A)] are any of the following which appear to be relevant-

(a) the strength of the bargaining positions of the parties relative to each other, taking into account (among other things) alternative means by which the customer’s requirements could have been met;

(b) whether the customer received an inducement to agree to the term, or in accepting it had an opportunity of entering into a similar contract with other persons, but without having to accept a similar term;

(c) whether the customer knew or ought reasonably to have known of the existence and extent of the term (having regard, among other things, to any custom of the trade and any previous course of dealing between the parties);

(d) where the term excludes or restricts any relevant liability if some condition is not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable;

(e) whether the goods were manufactured, processed or adapted to the special order of the customer.

Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371

In 2002, GF entered into a contract with HFP for the supply of a fire detection and suppression system for a multi-purpose fryer which GF used in its food factory. The contract price was £7,490. GF claimed that in 2012 a fire broke out in the fryer because of a defect in the suppression system. GF claimed that the fire caused substantial property damage and loss of business amounting to around £6m. GF conceded that any claim based on breach of contract was time-barred under the Limitation Act 1980. However, GF proceeded with a claim in negligence.

In defending the claim HFP sought to rely on an exclusion clause, Clause 11, which it claimed had been incorporated into the contract with GF.

Clause 11 provided:
‘We exclude all liability, loss, damages or expense consequential or otherwise caused to your property, goods, persons or the like, directly or indirectly resulting from our negligence or delay or failure or malfunction of the systems or components provided by HFS for whatever reason. In the case of faulty components, we include only for the replacement, free of charge, of those defected parts. As an alternative to our basic tender, we can provide insurance to cover the above risks. Please ask for the extra cost of the provision of this cover if required.’

On a preliminary issue, the judge held that the exclusion clause was not particularly unusual or onerous and had been reasonably and fairly drawn to GF’s attention before the contract was made. The judge further held that the clause satisfied the requirement of reasonableness under s 11 UCTA.

The CA dismissed GF’s appeal.

‘[I]t is certainly right . . . that the trend in the UCTA cases decided in recent years has been towards upholding terms freely agreed, particularly if the other party could have contracted elsewhere and has, or was warned to obtain, effective insurance cover.’ (Coulson LJ at [93]).

‘It may be noted that decisions, as to whether a particular clause is “reasonable” within the meaning of UCTA, or whether, having regard to the nature of the exclusion or limitation of liability clause in question, adequate notice has been given, are evaluative in character. Accordingly, a reluctance to interfere with bargains made by commercial parties is accentuated in an Appellate Court by the consideration that this Court “. . . should treat the original decision with the utmost respect and refrain from interference with it unless satisfied that it proceeded upon some erroneous principle or was plainly and obviously wrong”: Lord Bridge of Harwich, in George Mitchell (Chesterfield) Limited v Finney Lock Seeds Limited [1983] 2 AC 803 at 816.’ (Gross LJ at [105]).


Scope of the Act

The 2015 Act applies to certain types of contracts made between traders and consumers. According to section 2:

• a trader is ‘a person acting for purposes relating to that person’s trade, business, craft or profession, whether acting personally or through another person acting in the trader’s name or on the trader’s behalf’.

• A consumer is ‘an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession’.

The main provisions concerning exclusion clauses are as follows:

Excluding Liability for Loss or Damage Resulting from Negligence

S 65 Bar on exclusion or restriction of negligence liability

(1) A trader cannot by a term of a consumer contract or by a consumer notice exclude or restrict liability for death or personal injury resulting from negligence.

S 57 Liability that cannot be excluded or restricted

(1) A term of a contract to supply services is not binding on the consumer to the extent that it would exclude the trader’s liability arising under section 49 (service to be performed with reasonable care and skill).

(3) A term of a contract to supply services is not binding on the consumer to the extent that it would restrict the trader’s liability arising under [section 49] . . . if it would prevent the consumer in an appropriate case from recovering the price paid or the value of any other consideration. (If it would not prevent the consumer from doing so, Part 2 (unfair terms) may apply.)

S 62 Requirement for contract terms and notices to be fair

(1) An unfair term of a consumer contract is not binding on the consumer.

(4) A term is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.

(5) Whether a term is fair is to be determined –

(a) taking into account the nature of the subject matter of the contract, and
(b) by reference to all the circumstances existing when the term was agreed and to all of the other terms of the contract or of any other contract on which it depends.

Excluding Liability for Breach of the Implied Term as to Satisfactory Quality of Goods

S 31 Liability that cannot be excluded or restricted

(1) A term of a contract to supply goods is not binding on the consumer to the extent that it would exclude or restrict the trader’s liability arising under any of these provisions –

(a) section 9 (goods to be of satisfactory quality);

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