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Exemption Clauses in ICT Contracts between Professional Parties.

 

Parties are generally free to avoid or limit potential obligations to reimburse damages resulting from breach of contract or tort by agreeing on an exemption clause. This update discusses the following aspects:

  1. the ground rules which must be respected when deciding whether it is unacceptable to invoke the exemption clause in a contract between professional parties;
  2. the circumstances under which it is unacceptable to invoke such a clause; and
  3. the circumstances which are the most significant when testing exemption clauses in information and communications technology (ICT) contracts between professional parties.

 

Ground Rules

 

Exemption clauses are generally tested against the limiting effect of reasonableness and fairness. The following ground rules must be respected when conducting such a test:  

  1. Where an exemption clause is tested against the limiting effect of reasonableness and fairness, the standard is whether it is unacceptable to invoke the exemption clause based on reasonableness and fairness, and not whether invoking the exemption clause is contrary to reasonableness and fairness (the first test is more restrictive than the latter);
  2. In contracts between professional parties, restraint is appropriate when deciding whether an exemption clause is unacceptable based on reasonableness and fairness; and
  3. All relevant circumstances must be considered when deciding whether an exemption clause is unacceptable based on reasonableness and fairness. 

Relevant Circumstances

 

It is generally unacceptable for a party to invoke an exemption clause in case of wilful intent or conscious recklessness on the part of the party or of the company's management. According to Saladin v HBU,(6) whether it is unacceptable to invoke any other exemption clause will depend on the weighing of many circumstances, including:

 

  1. the gravity of the fault (together with the nature and gravity of the interests involved);
  2. the nature and further content of the contract in which the clause is included;
  3. the social and relative positions of the parties;
  4. the manner in which the clause came into existence; and
  5. the extent to which the counterparty is aware of the purpose of the clause.

ICT Contracts

In ICT contracts between professional parties, the gravity of the fault is arguably the most important circumstance to consider. Therefore, the following circumstances are significant:

  1.  the difference in expertise between supplier and customer with respect to performance of the contract;
  2. the nature and gravity of the customer's interest in the supplier's performance of the contract; and
  3. the nature and gravity of the damage which the customer suffered as a result of the supplier's performance of the contract.

Arguably, the other Saladin v HBU circumstances should not - or should only to a small extent - influence the assessment of exemption clauses in ICT contracts.

 

Comment

 

Parties are free to allocate risks. Contracting represents an allocation of risks. The conclusion of exemption clauses also represents an allocation of risks. Judges should respect this freedom as much as possible.