Bye-bye exemption clauses?

When a consumer and supplier conclude a contract, it is easy for a consumer to concern himself with the apparent key provisions of the contract such as the contract value, duration, payment terms, delivery dates etc. and not focus on clauses dealing with the exemption of liability of the supplier. In the past these exemption clauses were often one-sided, unfair and biased against the consumer prejudicially affecting the rights of the consumer against whom the exemptions were enforced. With the advent of the Consumer Protection Act (“CPA”) these clauses have been curbed. But are they completely outlawed, or can contracts still have exemption clauses?

The CPA was drafted to protect the consumer against illegal business practices, particularly where an unfair or unequal relationship exists between a consumer and supplier.

The CPA specifically prohibits suppliers from imposing exemption clauses on consumers that require a consumer to waive any rights; assume any obligation; or waive any the liability of the supplier on terms that are unfair, unreasonable or unjust or impose any such terms as a condition of entering into a transaction.

Section 49 of the CPA further provides that certain types of terms and notices in which there is a limitation of the risk or liability of a supplier, or where the consumer assumes a risk or liability, or where the consumer is required to indemnify the supplier, or where the consumer has to make an acknowledgement of any fact, must be written in plain language and the existence of the terms must be drawn to the consumer’s attention in a conspicuous manner and form that is likely to attract the attention of an ordinary alert consumer. Accordingly, it is insufficient to print this type of clause in small print in a place in the contract where the consumer cannot reasonably be expected to notice the terms. However, if the exemption clause is printed in contrasting typeface, or in bold, close to the primary terms of the contract where it is likely to be noticed by any consumer who reads the primary terms, this may be sufficient to comply with this requirement.

Furthermore a supplier seeking protection of an exemption clause in a contract will need to draw the exemption clause to the consumer’s attention at the negotiating stage of the contract and not after the conclusion thereof. This would require that the consumer’s attention be drawn to the specific highlighted clauses in the contract that hold risk for the consumer.

Where exemption clauses are inserted in a contract that do not meet the above requirements, the CPA allows the court to make an order severing the provisions or notices from the contract or declaring it to have no force or effect with respect to the transaction.

The CPA has thus introduced a balanced negotiation process between consumers and suppliers seeking to enter into contracts. Blatant unfair and unreasonable limitation of the rights of a consumer entering into a contract has now been removed, with any remaining exemptions required to comply strictly with the notice requirements of the CPA, curbing exemption clause abuse as encountered in the past.

As a consumer you must be aware of your rights. When entering a contract with its exemption clauses highlighted and brought to your attention, don’t just assume that the risks are appropriate. Consider the provisions carefully and understand the risks you are signing up for. Where you are unsure of the implications, rather obtain legal advice and gain a complete understanding. It may seem tedious, but it is better to be safe than sorry.

May 6, 2014
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