Exclusion Clauses and the Reasonableness Test

Exclusion clauses are clauses in a contract where one party of the contract incorporates an express term in the contract in order to exclude or limit its liability for a particular default on their part. Due to the purpose of the clauses the Unfair Contract Terms Act 1977 (‘UCTA’) seeks to control the use of such clauses.

UCTA was introduced to deal with business to business and business to consumer transactions therefore a contract between private individuals would not be able rely on UCTA 1977 is seeking to exclude or limit liability in their contract.Â

An exclusion clause will be held either to be effective or ineffective. In order to determine this test of reasonableness is applied.

The reasonableness test is set out under S11 (1) of UCTA 1977 and asks ‘is it fair and reasonable to be included, having regard to the circumstances which were, or ought reasonably to have been, known to or in contemplation of the parties when the contract was made’.

In deciding whether or not a clause is reasonable the courts must consider the bargaining power of each party to the contract. The courts must also establish whether or not the party was made aware of the clause in which manner – was the contract signed? If not, was reasonable notice of the exclusion given to the other party before they entered into the contract? Was there a previous and consistent course of dealing between the parties or are the parties in the same or similar trade? The courts must also take into consideration the circumstances surrounding the transaction and whether the goods were made to order for the buyer.

It is for the party that is seeking to rely on the exclusion clause to prove that it is reasonable. If the test of reasonableness is satisfied the clause will be effective.

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