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What is an Exclusion Clause?

What is an Exclusion Clause?

Exclusion clauses are how companies cover any potential legal liabilities they may be exposed to when they restrict the rights of the signing party.

3rd December 2019

It is very likely that in some way or another you have come across the term ‘exclusion clause’ before. Many contracts, namely waivers, contain them. They are used to cover any liabilities they may have when they restrict the rights of the other party to the contract. Examples of these include:

  • A construction company limiting the other parties to claim for delays due to bad weather.
  • A tech company limiting consumer warranty claims in scenarios of product mishandling.
  • A rugby team limiting a player’s claim to damages for injuries sustained on the field.

Regardless of whether you are forming a contract or signing one, it is important to understand how your rights and obligations may be affected by these clauses.

Here we break down how exclusion clauses work to bind parties, as well as what limitations exist on them.

Is the exclusion clause binding?

To bind a party to a contract term, it is essential that they were aware of it existing before agreeing to it. This awareness is formed via two elements.

1. Notice

An exclusion clause must give appropriate notice for it to be binding. Notice simply refers to whether the person was aware that the exclusion clause existed before agreeing to it.

A famous case, and a good example of this was in Thornton v Shoe Lane Parking Ltd [1970] 2 QB 163. Here an exclusion appeared on the back of a parking ticket.

Because the person could not read the clause before purchasing the ticket, they did not have notice of the clause before agreeing to the contract. Hence, the clause was invalid.

2. Acceptance

Accepting a contract immediately binds a party to all the terms and conditions included within it. This will happen even if you don’t read all the terms. This is because is presumed that provided appropriate notice is given, the person will make themselves aware of all the terms of the contract. This includes any exclusionary clause.

It is therefore important to contact a lawyer before signing any agreements to have the document analysed first.

Express or implied?

Up to this point, we have only discussed what are known as express exclusionary clauses. This means terms that are expressly made known to the acceptor. But, exclusionary clauses can also exist in implied contracts. This is a much harder concept to grasp and you can see our guide to implied contracts here.

As to avoid any confusion we will avoid going in-depth to this topic in this article. But in brief, just as you can consent to implied contracts and implied terms, there may be implied exclusionary terms.

For example, when you get on a bus there is an implied contract with the bus company for how you will use the service. Within this, there is an implied exclusionary clause that you forgo your right to free movement while you are on that bus.

Don’t worry if this is harder to understand, it has baffled many a law student as is.

Illegal exclusion clauses

Australian law limits the functions of many exclusionary clauses. For example, Australian Consumer Law prevents manufacturers from limiting or excluding consumer rights over defective products in certain ways.

Many of rights are protected from being excluded by various pieces of legislation. Some are specific to a certain contract and many overlap. It is important then, whether you are writing or signing a contract, to consider what may affect you.

Events beyond the scope of the contract

An exclusion clause often covers a certain scenario. If an event is beyond that scenario, it will not be covered by that clause.

For example, when you hand your car to a parking valet you enter a contract with the valet to take your car and park it. In this contract, an exclusion clause likely exists protecting the company from damage claims if an accident occurs that is not the fault of the valet.

Say that valet instead takes the car for a joyride and ends up in an accident. Here it doesn’t matter whether it was their fault or not.

As the contract was for the valet to park your car and not to take it on a joyride, the event is beyond the scope of the contract. Hence, the exclusion clause would not apply.

Conclusion

Exclusion clauses offer a chance for companies to avoid unnecessary legal disputes for events beyond their control. They are an important tool, but one that can be misused easily. It is therefore important to be aware of the implications and limitations of them before dealing with contracts containing them.

Of course, these are just a snapshot and the clauses themselves are very complex and exact in their terms.

Don’t know where to start? Contact us on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest lawyer marketplace.

Author
Daniel Fane

Daniel is a Legal Tech Intern at Lawpath. He is currently studying a Bachelor of Laws/Bachelor of Business at the University of Technology Sydney. His principal fields of interest are in commercial, corporate and intellectual property law.