Define: Privity And Exclusion Clauses

Privity and exclusion clauses pertain to contractual agreements and the extent to which parties not directly involved in a contract can benefit from or be bound by its terms. Privity refers to the legal relationship between parties to a contract, where only those parties have rights and obligations under the contract. Exclusion clauses, on the other hand, are contractual terms that seek to limit or exclude liability for certain types of loss or damage.

In the context of privity and exclusion clauses, if a third party seeks to enforce the terms of a contract or be bound by its exclusion clauses, they typically must demonstrate that they are a party to the contract or that the contract was intended to confer a benefit or impose an obligation on them. This is often achieved through mechanisms such as assignment, novation, or the doctrine of third-party beneficiaries.

Exclusion clauses are subject to scrutiny by courts to ensure that they are fair and reasonable. While parties generally have freedom to negotiate contractual terms, exclusion clauses that attempt to exclude liability for negligence or other fundamental breaches of contract may be subject to stricter scrutiny. Courts may also consider factors such as the parties’ bargaining power, the clarity of the exclusion clause, and public policy considerations in determining the enforceability of exclusion clauses.

In general, an exclusion clause in a contract acts to defend one of the parties, usually for consequences of a breach of contract or negligence. The clause describes a relationship between the contracting parties. It is sometimes desirable to extend an exclusion clause to parties outside the contract. For example, a company may wish to protect the contractors that it employs. On the whole, however, privity of contract acts to restrict the effect of such clauses on third parties.

The courts usually try to enforce a contract in the way the contracting parties intended. For example, if I sign a contract to the effect that I indemnify you and your agents, and I do so of my own free will, then clearly I have an obligation to do so. In some cases, the courts are able to find ways to enforce the parties’ intentions without offending any legal principles, although tortuous logic may be required (see: The Eurymedon (1975)).

This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 29th March, 2024.