Chapter 6 Key facts checklist

Exemption clauses and unfair contract terms

An exemption clause is a term which purports to exclude (sometimes referred to as an exclusion clause) or limit (sometimes referred to as a limitation clause) the liability and/or the remedies which would otherwise be available to the non-breaching party.
The key question is whether a particular exemption clause can be relied upon as a defence (or partial defence) to liability and/or to preclude reliance on the usual remedies.
In order to be enforceable as a contractual term on the facts the exemption clause must be incorporated as a term of the contract (incorporation), cover the liability that has arisen in the circumstances in which it has arisen (construction), and not be precluded from operating by legislation.
An exemption clause can be incorporated as a result of signature, reasonable notice in a contractual document to people in general before or at the time of contracting, or as a result of a consistent course of dealing between the parties or their common understanding.
The Unfair Contract Terms Act 1977 (UCTA 1977) regulates exemption clauses business-to-business (B2B) contracts either by rendering the particular clause totally unenforceable or enforceable only if it can be shown to be reasonable. The applicable test turns on the liability.
In the context of consumer contracts, the Consumer Rights Act 2015 (CRA 2015) requires contract terms and notices to be fair (s. 62). The term or notice is regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer. This is the same wording as under the previous consumer legislation (Unfair Terms in Consumer Contracts Regulations 1999) which was repealed by the CRA 2015. The assessment for fairness cannot extend to terms which (i) specify the main subject matter of the contract or (ii) relate to an assessment of the appropriateness of the price payable under the contract by comparison with the goods or services received as long as those terms are transparent and prominent. Such an unfair term is not binding at the option of the consumer.