Exclusion clauses
Exclusion clauses

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Exclusion clauses

3.1 Use of clear words

If a person is under a legal liability and wishes to get rid of it, he can only do so by using clear words.

(Lord Justice Scrutton, cited in Alison (J Gordon) Ltd v Wallsend Slipway and Engineering Co Ltd (1927) 43 TLR 323, p. 324)

The courts require particularly clear words to be used to exclude a party’s liability for negligence. In Canada Steamship Lines Ltd v The King [1952] AC 192 (heard by the Judicial Committee of the Privy Council), Lord Morton (at p. 208) set out three rules for determining whether or not an exclusion clause did cover liability for negligence.

  1. If the clause contains language which expressly exempts the party seeking to rely on the clause from the consequences of negligence, effect will be given to that provision.

This usually applies where a clause specifically refers to ‘negligence’. For example, ‘Darling Dairies will not be liable for any negligent acts or omissions’. However, it can also include the use of words, which are ‘synonymous with negligence, or words which in the case law have acquired a status equivalent to a reference to negligence’ (per Lord Justice Steyn at p. 651 of EE Caledonia Ltd (formerly Occidental Petroleum (Caledonia) Ltd) v Orbit Valve Co Europe plc [1994] 1 WLR 1515).

If the first rule is not satisfied, then the clause must meet the requirements of both the second and third rules before it is allowed to exclude liability for negligence.

  1. If negligence is not expressly referred to, the court must consider whether the ordinary meaning of the words used is wide enough to cover negligence.

McKendrick (2013, p. 189) explains that if there is any doubt about this, it is resolved against the party seeking to rely on the exclusion clause.

  1. If the second rule is satisfied, the court must then consider whether or not the exclusion clause could cover forms of liability other than negligence. If this is the case, then the clause is generally not interpreted as applying to negligence.

The difficulties in meeting the requirements of both the second and third rules are illustrated by the case of Dorset County Council v Southern Felt Roofing Co Ltd (1990) 6 Const LJ 37, where a clause excluding liability for ‘loss or damage in respect of the Works … by fire’ was held to be wide enough to fall under the second rule. However, the fact it was so wide meant it could then be applied to fires that were not caused by negligence. This meant that it did not satisfy the third rule and the exclusion clause could not be relied on.

McKendrick (2013, p. 190) suggests that the second and third rules are contradictory. He also argues that they mean parties are unable to agree an exclusion clause that covers both negligent and other types of damage. The House of Lords, in HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003] 1 All ER (Comm) 349, did emphasise the importance of giving effect to the parties’ intentions. Lord Bingham (at p. 367) stated that there could be ‘no doubting’ the general authority of the Canada Steamship Lines Ltd rules. However, he stated that they should be seen as giving ‘helpful guidance on the approach to interpretation and not laying down a code’.

In many cases, clauses excluding negligence are now covered by legislation on exclusion clauses (see Section 5.1). Therefore, a party seeking to rely on such a clause may have to show that it is valid both at common law and under the relevant legislation.

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