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Exclusion clauses – contra proferentem

Generally, if there is an ambiguity in an exclusion clause, then that ambiguity will be construed against the person who is trying to rely on the exclusion clause (the contra proferentem principle).

This is illustrated by a recent case in which a share purchase agreement required the buyer to make any breach of warranty claim within 20 days of ‘becoming aware of the matter’. But, what did that phrase mean? It could mean (i) being aware of the facts, but being unaware that those facts might give rise to a claim; or (ii) being aware that there might be a claim; or (iii) being aware of the actual claim. But, the starting point was:

a) The wording of the contract prevails. If it is clear and unambiguous, then that is the end of the matter.

b) When constructing the contractual terms, it should be remembered that parties are not likely to have intended to restrict their rights or remedies unless there is clear wording to that effect.

c) Ambiguity is interpreted against the persons seeking to rely on the exclusion clause.

The end result was that the narrowest interpretation (ie (iii) – being aware of the actual claim) prevailed.

In general terms, when considering exclusion clauses:

  • Remember that very few clauses are likely to be absolutely watertight. Accordingly, rather than seeking to exclude all liability in all circumstances (and thereby potentially rendering the clause unenforceable) it may be better to accept some limited liability to ensure that the clause is valid.
  • Be wary of using standard or precedent documents. It is better to consider precisely what losses are likely to flow from a breach of contract, and to categorise them correctly in the context of the particular contract. Consult with the client to ensure that the allocation of risk and liability provisions reflects the client’s intentions.
  • Where possible, exclusion clauses should be drafted in a series of separate, self-contained provisions. In that case, if any part of the clause is found to be void or unreasonable, there is at least a chance that that part can be severed (leaving the remainder enforceable).

See commentary on Nobahar-Cookson v The Hut Group [2016] EWCA Civ 128 in [2018] 40 Procurement & Outsourcing Journal 2.

 

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