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Icl Exclusion Of Liability - International Commercial Law

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DRAFTING EXCLUSION CLAUSES
Basic Principles

  • Know commercial background

a) What sort of customers does client normally deal with?

b) What type of products does client sell and what can go wrong with them?

c) Which of client’s employees actually make the contracts ( ‘operate’ exclusion clauses)?

d) How, if at all, are any exclusions introduced to customers?

e) Are certain exclusions/limitations or standard-form contracts common in industry?

  • Drafting to litigate or negotiate? Check with client which strategy

  • Know the law

a) implied terms that may affect contract, eg in relation to delivery, title and quality

b) likely remedies for breach of express or implied terms

c) common law rules relating to incorporation and construction;

d) rules in UCTA 1977; and

e) factors which determine whether clause will pass reasonableness test or not

  • Know drafting principles. Use precedents. Draft for severance
Death or PI

  • Cannot exclude liability for death or personal injury (UCTA, s. 2(1))
Types of Exclusion Clause
Type of clause Effect of clause Example
Exclusion of liability Excludes liability altogether ‘The Seller accepts no liability for the late delivery of the Goods.’
Limitation of liability Limits extent of liability ‘The Seller’s liability is limited to the contract price of the Goods.’
Exclusion of remedies Limits remedies are available to B, eg right to terminate / right to damages. Includes non-rejection clauses. (An alternative is to provide for substitute remedies, eg repair or replacement.) ‘Where S is in breach of any terms of this Agreement B may not reject the goods or terminate contact and any claim is limited to damages.’
Exclusion of types of loss Limits liability for a particular type of loss, eg loss of profit or consequential loss. ‘The Seller accepts no liability for indirect or consequential loss or damage (whether loss of profit, loss of business or otherwise), costs, expenses or other claims for consequential compensation whatsoever (howsoever caused) which arise out of or in connection with this Agreement.’
Time bar Excludes liability unless notice of breach is given within a specified time period. ‘The Seller will not be liable for any defect in the quality of the Goods unless such defect is notified to the Seller within 7 days beginning with the date of delivery.’
Duty defining Prevents liability arising in the first place. ‘Any delivery dates specified are approximate only and whereas every attempt will be made to meet these dates the Seller cannot promise to do so.’
Force majeure Excludes liability for failure to perform the contract as a result of events outside the seller’s control.

‘The Seller is not liable for any delay in performing or failure to perform any of the Seller’s obligations in relation to the Goods if the delay or failure was due to circumstances outside the Seller’s reasonable control.’

(A non-exhaustive list of the force majeure circumstances, eg war, riot, flood, fire, abnormal weather, etc, should be included.)
Misrepresentation

Subject to MA, s. 3, which imposes UCTA reasonableness test

Exclusion of fraudulent misrep. will fail, but negligent and innocent may fail too
Entire agreement

Statement that parties have agreed to the terms contained in the contract and nowhere else (e.g. pre-contractual statements).

Will not prevent:

  • Misrepresentation claims

  • Claim based on events after contract signed

  • Claim for rectification on basis the contract does not reflect agreement

  • Implied terms (unless express exclusion)

‘(a) This Contract constitutes the entire agreement between the parties and supersedes and extinguishes all previous

agreements, promises, assurances, warranties, representations and understandings between them, whether written

or oral, relating to its subject matter.

(b) Each party agrees that it shall have no remedies in respect of any statement, representation, assurance or

warranty (whether made innocently or negligently) that is not set out in this agreement. Each party agrees that it

shall have no claim for innocent or negligent misrepresentation [or negligent misstatement] based on any statement

in this agreement.’
Testing the Clause

  • Contractual background

  • Identify relevant contract terms, express and implied

  • Decide whether likely to be breached and how

  • Anticipate remedy sought and consider whether available
Establishing Liability / Exclusion

  • Burden is on C to establish cause of action

  • Burden then shifts to D to show validity of exclusion clause; must prove 3 things:

  1. Incorporation (that clause forms part of contract)

  2. Construction (that, on true construction, wording is wide enough to cover breach)

  3. UCTA (that clause is not invalidated by UCTA)
Incorporation

  • Three ways clause may be incorporated:

  • Signature: if documents signed, likely to be incorporated

  • Notice: rble steps must be taken to bring it to party’s attention before contract made; the more onerous the clause, the greater the effort to draw attention (‘red hand rule’)

  • Course of dealings: regular customers or ‘one-off transactions’? far more common with commercial parties
Construction

  • Will only be effective if worded:

  1. Covers breach which actually occurs (requires commercial awareness)

  2. Exclude S’s liability for breach

  • Construed contra proferentum: ambiguity resolved against person seeking to rely on it

  • Expressio unius est exclusio alterius: if contract expressly mentions one or more matters, those not mentioned are automatically excluded

  • Ejusdem generis: general words after two or more specific words restricted to same type as specific words
UCTA

  • Act only applies in course of business dealings (1(3)), not consumer contracts

  • ss. 2-4 do not apply to certain contracts: insurance, land, IP (Sch. 1)

  • ss. 3-4 do not apply to intl supply contracts (26(2)) (where goods carried from one state to another; offer and acceptance made in different territories; or goods delivered to...
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