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In principle one of the most basic methods that should result in dispute avoidance is the inclusion of specific contractual provisions under which risks of various kinds are assigned by agreement to one party or the other.

In such a case, the allocation of risk is reflected in the pricing of the contract and since a party is entitled to no more than it has agreed to pay, the result of the allocation should be to reduce dispute.

Despite the rationality of this assumption, this has not been how things have worked out – in part due to the insistence of the courts to subject most provisions of this type to minute examination.

By way of a preface to a fuller consideration of such provisions, it is worth noting while there are a number of provisions of this kind, the most hotly disputed have been those that constitute exclusion and damage limitation clauses.

The former effectively transfers some recognized risk associated with a contract of a given kind and assign it to a party, to the exclusion of any liability of each other.

The latter effectively divide the risk between the parties by (in effect) making one party liable for the loss up to a stipulated cap (or percentage of loss), and then allocating the balance of any loss to the party by effectively shielding the first party from any further liability beyond that cap.

Exclusion clauses of various kinds are often inserted by municipalities into their tender terms and conditions.

Suppliers seek to include comparable provisions in their standard documentation. When these provisions conflict, dispute is likely.

The value of these terms is also a matter of doubt: Provisions of this kind have not been well treated by the courts.

For decades, such provisions were distorted using a variety of contract interpretation rules developed in a series of English contract law decisions known as the ticket cases.

These rules were employed by the court to relieve parties from clauses they had in effect accepted without full understanding of their meaning.

Initially, the courts would give effect to such exclusions and limitation provided sufficient notice was given.

As this approach proved to have limited success as a consumer protection device, since railway companies and others quickly became adept at providing notice, the courts shifted their focus towards the interpretation of the clauses in question.

The effect of limitation of liability clauses of various kinds and their application to particular types of factual circumstances remain matters of serious controversy and consequently continue to form the basis of a good deal of litigation.

Nevertheless, the following general principles of law appear to be fairly well settled.

An exclusion (or limitation) clause is a contractual term, invariably in writing, that limits or excludes liability for damages for breach of contract or for a tort arising in connection with the performance of breach of a contract.

The right of the parties to include such an arrangement in their contract is a logical extension of the idea that contracts involve obligations defined in scope by the parties themselves and voluntarily assumed by them.

The purpose of an exclusion clause is to limit one or both of the parties’ duties under the contract and to exclude any lability beyond what the parties have agreed to assume.

Where a written contract contains both an “entire agreement” clause and an exclusion clause, the apparent intent of the parties is to exclude liability for any statements other than those set out in the written contract.

It follows that exclusion clauses are not inherently unreasonable.

In construction an exclusion clause, the issue to be addressed is whether, as a matter of construction, the exclusion clause covers the alleged occurrence or breach in question.