An exclusion clause (or "exemption clause") is a contract term that tries to exclude or limit one party's liability, for example, "we accept no liability for any loss or damage", or "our liability is limited to the price paid". They are extremely common, but in England and Wales they are not always valid. Whether one bites depends on three questions. Here is a plain-English guide.
What exclusion clauses do
Exclusion clauses come in different forms:
- Exclusion, removing liability altogether ("we are not liable for…").
- Limitation, capping liability (to a sum of money, or a time limit for claims).
- Excluding certain losses, e.g. "we exclude liability for indirect or consequential loss".
They allocate risk between the parties, sensible in business, but open to abuse against weaker parties, which is why the law controls them.
The three hurdles a clause must clear
For an exclusion clause to work, it must pass all three tests:
1. Incorporation, is it part of the contract?
The clause must have been properly incorporated before or at the time the contract was made, by signature, by reasonable notice (e.g. clear terms given before purchase, not after), or by a consistent course of dealing. A term buried in a notice handed over after the contract, or never drawn to attention, may not be incorporated. Particularly onerous or unusual terms need to be highlighted more prominently.
2. Construction, does it actually cover what happened?
The clause is interpreted strictly. If its wording does not clearly cover the loss or the type of breach that occurred, it fails. Ambiguities are generally read against the party relying on the clause (the contra proferentem rule), and clear words are needed to exclude liability for negligence.
3. Statutory controls, is it allowed by law?
Even a clear, incorporated clause is subject to statute:
- Business-to-business contracts: the Unfair Contract Terms Act 1977 (UCTA). You can never exclude liability for death or personal injury caused by negligence (s 2(1)). Other attempts to exclude or limit liability for negligence (other than death or personal injury) are valid only if reasonable (s 2(2)). In addition, section 3 subjects exclusions or restrictions of liability for breach of contract to the reasonableness test, but only where one party deals on the other's written standard terms of business (not in every B2B contract). The reasonableness test is judged at the time the contract was made; relevant factors include bargaining strength, inducement, and whether the customer could have contracted elsewhere (Schedule 2).
- Business-to-consumer contracts: the Consumer Rights Act 2015 (CRA). A trader cannot exclude the consumer's core statutory rights (e.g. goods of satisfactory quality, services with reasonable care and skill), and cannot exclude liability for death/personal injury from negligence. Other terms must be fair (not causing a "significant imbalance" to the consumer's detriment contrary to good faith) and transparent. The CRA contains a "grey list" of terms likely to be unfair.
So, are they valid?
Sometimes. A well-drafted, clearly incorporated, reasonable (B2B) or fair (consumer) clause that plainly covers the loss can be fully effective. But clauses that are hidden, ambiguous, attempt to exclude liability for death/personal injury from negligence, or are unreasonable/unfair will be struck down, wholly or in part.
Practical tips
- Drafting/relying on a clause: bring it to the other party's attention before the contract, use clear words (including expressly for negligence where lawful), and keep it reasonable, modest, proportionate caps fare better than blanket exclusions.
- Facing a clause: check whether it was incorporated, whether it really covers your loss, and whether it survives UCTA/CRA, many do not.
- Never rely on excluding liability for death or personal injury caused by negligence, it cannot be done.
Key takeaways
- An exclusion clause limits or removes liability; to be valid it must be incorporated, cover the loss on its wording, and survive statutory controls.
- B2B: the Unfair Contract Terms Act 1977, no excluding death/PI from negligence; much else only if reasonable.
- Consumer: the Consumer Rights Act 2015, core rights can't be excluded; other terms must be fair and transparent.
- Hidden, ambiguous or unreasonable/unfair clauses are commonly unenforceable.
Sources
- Unfair Contract Terms Act 1977, ss 2, 3, 11 and Schedule 2 (B2B and negligence; reasonableness test)
- Consumer Rights Act 2015, Part 2 (fairness of consumer terms; grey list; non-excludable rights)
- Common law on incorporation and construction of exclusion clauses (notice, signature, contra proferentem)
--- This article is general information about the law of England & Wales as at 2026, not legal advice. For advice on your circumstances, consult a qualified solicitor.