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Exclusion clauses

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What are exclusion clauses?

If you're selling goods, several things could go wrong. This would make you liable to compensate the buyer. For example, you would be responsible if you deliver the goods late, or if the goods are defective.

It's possible for you to include terms in your sales contract to protect yourself from liability if specified things go wrong, e.g. you could include a term saying you're not legally responsible if you're late in delivering the goods. This type of term is called an 'exclusion clause'.

You could also include limitation clauses limiting your liability, e.g. by stating that you won't be liable for an amount greater than the price if the goods are faulty.

In order to provide some protection for the buyer, the law restricts how far a seller can exclude or limit their liability. This section looks at these rules.

Although exclusion clauses may appear powerful, many of them can become void at court hearings. If you want to be protected by an exclusion clause, you need to prove the following 3 things:

1. Incorporation

2. Construction

3. The Unfair Contract Terms Act

Incorporation

In order for you to rely on an exclusion clause, you must first show that it's part of your contract. If it's contained in a document that has been signed by the buyer, it's likely that the clause has been incorporated into the contract.

If, however, the buyer hasn't signed the document, the exclusion clause will only form part of the contract if you took reasonable steps to bring it to their attention before the contract was made. You could do this by ensuring that the buyer has a copy of the contractual terms before the contract is made, and ensuring that any exclusion terms are prominent enough for a reasonable person to notice and easily read. If the exclusion clause is on the back of a document such as an order form, you should state on the front that these terms are set out on the back.

It's a good idea to make your terms available to the buyer on as many occasions as possible before the contract is made, e.g. providing them on websites, quotations and order forms. If you're making a sale via a website, you should ensure that the buyer can't continue with the order until they accept your terms and conditions.

If you only give the terms to the buyer after you've entered into the contract, you'll normally not be able to rely on your exclusion clause to protect yourself from liability. However, you may be able to rely on it if you can show that you had previously dealt with the same buyer and provided them with the same contractual terms so many times that they ought to have known about your exclusion clause.

The harsher your exclusion clause is the more you need to do to bring it to the buyer's attention.

Construction

Even if the exclusion clause is incorporated into a contract, it will only be effective if the wording of the clause relates precisely to your breach of the contract and to the solution the buyer wants. You'll need to check that the exclusion clause covers the circumstances in question.

You must make sure that the exclusion clause is clear and unambiguous. If it's unclear as to whether the wording applies to the circumstances that have occurred, the court will give the buyer the benefit of the doubt. In this case, you won't be allowed to rely on the clause to protect yourself.

It's possible to exclude liability for your negligence, but the clause would have to say so very clearly. The word 'negligence' need not necessarily appear, but the buyer must reasonably have understood that the clause means that you would not be liable if you were negligent.

The Unfair Contract Terms Act

If a contract is covered by the Unfair Contract Terms Act, and your buyer is a consumer, you wouldn't be allowed to exclude certain types of liability. However, in a commercial contract where your buyer is another business, the Act may allow you to exclude certain types of liability if that would be reasonable in the circumstances. Your exclusion clause would be invalid if it's not reasonable. (See Unfair contract terms for more information.)