I have just been given a contract to sign, it is for a new business deal between my company and another company. Essentially I am buying up their business and making it part of my own business.
The hired the Solicitor who drafted up the contract and I am quite concerned by a large part of the contract called exclusion clauses, can you please explain what exclusion clauses are and how they work in relation to such an agreement.
I am worried they are trying to pull the wool over my eyes, as they have listed up 37 exclusion clauses.
What are exclusion clauses and how would they apply to a contract?
The Answer from Solicitors Online
What are exclusion clauses?
An exclusion clause is a clause that may be inserted into a contract, which excludes or limits a party’s liability for breach of contract, misrepresentation or negligence.
When is an exclusion clause valid?
An exclusion clause will only be valid if it is a term of the contract which was included in the contract by one of the following ways:
(a) the signature of both parties to the contract;
(b) notice of the exclusion clause being given to one party by the other; or
(c) previous business dealings that the parties have carried out together.
Exclusion clause valid with notice
Reasonable and sufficient notice of the existence of an exclusion clause must be given to a party to a contract.
This means that the exclusion clause must be contained in a “contractual document” which a reasonable person would expect to contain contractual terms.
The existence of the clause must also be brought to attention before or at the time the contract is being created.
For example if a person hires a chair on Blackpool beach from the local council and the hirer of the chair receives a ticket for proof of payment, that also includes an exclusion clause stating that the council is not liable for any injury the hirer suffers as a result of using the chair. Sufficient notice of the exclusion clause would not have been given, as a reasonable person would not expect the ticket to contain contractual terms about the hire.
An exclusion clause in the course of business
Where there has been insufficient notice given about an exclusion clause, an exclusion clause can still be valid because of previous business dealings that the parties have already carried out.
An example of this is a restaurant and its food supplier have previously transacted on many occasions and each time the food supplier delivers food to the restaurant they also leave documents relating to changes in the food delivery.
If on one occasion the food supplier leaves documents regarding a new exclusion clause which the restaurant owner does not get round to reading. The restaurant can still be bound by the exclusion clause because of the past business dealings they have had with the food supplier and the regular act of the food supplier leaving documents containing business updates with each food delivery.
Exclusion clause’s interpretation
Once it has been established that an exclusion clause has been incorporated into a contract, a contract can be examined to see whether the exclusion clause covers a breach of contract that occurs.
If the exclusion clause is unclear or unspecific, then it will be regarded as providing the least possible exclusion. This is to prevent the use of exclusion clauses, which provide blanket type protection from all liability in all circumstances.
If there is a very serious breach of a contract, such as something which destroys the whole basis of the contract. Then an exclusion clause cannot be relied upon and will provide no protection to the party that committed the breach of contract.
If you need legal advice on exclusion clauses you can speak to one of our Business Solicitors online right now.