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Contract, Liabilities for Breach

Exclusion Clauses

Limitation Clauses
Last updated: 06-Oct-2014

Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 All ER 101,HL per Lord Wilberforce at page 103:

Clauses of limitation are not regarded by the courts with the same hostility as clauses of exclusion; this is because they must be related to other contractual terms, in particular to the risks to which the defending party may be exposed, the remuneration which he receives and possibly also the opportunity of the other party to insure.

Per Lord Fraser of Tullybelton at page 105:

There are later authorities which lay down very strict principles to be applied when considering the effect of clauses of exclusion or of indemnity: see particularly the Privy Council case of Canada Steamship Lines Ltd v R [1952] 1 All ER 305 at 310, [1952] AC 192 at 208, where Lord Morton, delivering the advice of the Board, summarised the principles in terms which have recently been applied by this House in Smith v UMB Chrysler (Scotland) Ltd 1978 SC (HL) 1. In my opinion these principles are not applicable in their full rigour when considering the effect of conditions merely limiting liability. Such conditions will of course be read contra proferentem and must be clearly expressed, but there is no reason why they should be judged by the specially exacting standards which are applied to exclusion and indemnity clauses. The reason for imposing such standards on these conditions is the inherent improbability that the other party to a contract including such a condition intended to release the proferens from a liability that would otherwise fall on him. But there is no such high degree of improbability that he would agree to a limitation of the liability of the proferens, especially when … the potential losses that might be caused by the negligence of the proferens or its servants are so great in proportion to the sums that can reasonably be charged for the services contracted for. It is enough in the present case that the condition must be clear and unambiguous.

BHP Petroleum Ltd v British Steel pic [2000] 2 Lloyd’s Rep 277, per Evans LJ stated at p. 285:

I think it is unfortunate if the present authorities cannot be reconciled on the basis that no categorization is necessary and of a general rule that the more extreme the consequences are, in terms of excluding or modifying the liability which would otherwise arise, then the more stringent the Court’s approach should be in requiring that the exclusion or limit should be clearly and unambiguously expressed. Indeed, if the requirement is of a clear and unambiguous provision, then it is not easy to see why degrees of clarity and lack of unambiguity should be recognized.

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