Exam 7: Clauses Excluding or Limiting Liability

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The common law, which is law developed by judges through decisions of courts and similar tribunals, has traditionally approached terms which seek to exclude or limit liability with a degree of skepticism and careful scrutiny. This is because such terms, often found in contracts, can significantly affect the rights and remedies available to the parties involved, particularly if one party is in a much stronger bargaining position than the other.

Here are some of the key principles and approaches that common law has traditionally used when dealing with exclusion or limitation clauses:

1. **Incorporation by Notice**: For an exclusion or limitation clause to be part of a contract, it must be properly incorporated. This means that the party seeking to rely on the clause must have given sufficient notice of it to the other party before or at the time the contract was formed. If the clause is contained in a document which does not appear contractual (like a receipt), it may not be incorporated unless reasonable notice was given.

2. **Contra Proferentem Rule**: This is a rule of contractual interpretation that provides that any ambiguity in a contract should be resolved against the interests of the party that imposed the term. In the context of exclusion clauses, this means that if the language is unclear or ambiguous, the clause will be interpreted in favor of the party that did not draft it.

3. **Reasonableness Test**: In many common law jurisdictions, for a term excluding or limiting liability to be enforceable, it must satisfy a test of reasonableness. For example, in the UK, the Unfair Contract Terms Act 1977 (UCTA) requires that such terms are reasonable. This involves considering factors such as the bargaining power of the parties, whether the party was given an inducement to agree to the term, and whether the party knew or ought reasonably to have known of the existence and extent of the term.

4. **Fundamental Breach**: Traditionally, common law held that a party could not exclude liability for a fundamental breach of contract, meaning a breach that goes to the very root of the contract. However, this concept has evolved, and the modern approach is more nuanced, often looking at the intention of the parties as expressed in the contract.

5. **Statutory Restrictions**: There are statutory provisions that limit the extent to which one can exclude or limit liability. For example, in many jurisdictions, it is not possible to exclude liability for death or personal injury caused by negligence.

6. **Public Policy**: Exclusion clauses are subject to the overriding principle of public policy. This means that a court may refuse to enforce a term that it considers to be contrary to the public interest.

In summary, while the common law does not prohibit exclusion or limitation clauses outright, it does impose a series of checks and balances to ensure that such clauses are fair and reasonable, and that they do not undermine the fundamental principles of justice and equity. Courts will closely examine these clauses to ensure they do not result in unconscionable outcomes or the unjust deprivation of legal rights.