Lloyd's Maritime and Commercial Law Quarterly
COMMERCIAL CONSTRUCTION OF EXEMPTION CLAUSES
Stelios Tofaris *
English courts have traditionally used special rules of construction to restrict the application of exemption clauses. However, statutory control and development of the modern principles governing contractual interpretation have led to calls for the disappearance of those rules. The extent to which they should remain relevant is an important issue. Recent case law suggests that the law is in a process of transition. In this article it is argued that the law should embrace the commercial construction of exemption clauses in contracts negotiated between commercial parties of comparable bargaining power. Accordingly, construction of such clauses should be assimilated as closely as possible to the ordinary process of contractual interpretation and special rules of construction should be kept to a minimum.
I. INTRODUCTION
Exemption clauses are a common feature of commercial contracts. Parties frequently attempt to exclude or limit liability arising from breach of contract or otherwise. Yet, the courts have traditionally treated exemption clauses with hostility. As part of that, they have applied special rules of construction to restrict their application. However, in recent years there have been calls for “the disappearance of artificial rules for the construction of exemption clauses”.1 This is mainly the result of two developments: first, the enactment of legislation regulating exemption clauses,2 which has led courts to emphasise the significance of respecting the contractual allocation of risk by commercial parties of comparable bargaining power;3 second, the advance of the modern approach to contractual interpretation.4 It is a topical issue whether particular rules of construction should remain relevant when interpreting exemption clauses. The article addresses this issue in respect of contracts negotiated between commercial parties of comparable bargaining power.
* Fellow of Girton College, Cambridge; Lecturer in Private Law, University of Cambridge. I would like to thank Neil Andrews, Joanna McCunn, Jonathan Morgan, Janet O’Sullivan and the anonymous referee for helpful comments on earlier drafts. The usual caveat applies.
1. Bank of Credit and Commerce International SA v Ali [2001] UKHL 8; [2002] 1 AC 251, [62] (Lord Hoffmann).
2. Unfair Contract Terms Act 1977. See also Consumer Rights Act 2015.
3. Photo Production Ltd v Securicor Transport Ltd [1980] 1 Lloyd’s Rep 545, 549; [1980] AC 827, 843 (Lord Wilberforce); [1980] 1 Lloyd’s Rep 545, 554; [1980] AC 827, 851 (Lord Diplock).
4. Investors Compensation Scheme v West Bromwich Building Soc [1998] 1 WLR 896, 912–913 (Lord Hoffmann). This approach owes much to Lord Wilberforce’s speeches in Prenn v Simmonds [1971] 1 WLR 1381 and Reardon Smith Line Ltd v Yngvar Hansen-Tangen (The Diana Prosperity) [1976] 2 Lloyd’s Rep 621; [1976] 1 WLR 989.
Commercial construction of exemption clauses
271