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Exclusion Clause vs Limitation Clause

Exclusion clauses and limitation clauses are both types of contractual provisions that aim to allocate risk and define the extent of liability in a contract. However, they have distinct differences in their nature and effect.

Exclusion Clauses

Purpose: An exclusion clause is a contractual provision that seeks to exclude or eliminate liability for specific types of losses, damages, or obligations. Its primary function is to absolve a party from liability altogether for the specified circumstances.

Scope: An exclusion clause operates by stating that one party will not be liable or responsible for certain specified events, risks, or situations. It seeks to entirely remove or "exclude" the possibility of a claim or legal action arising from those circumstances.

Effect: An exclusion clause aims to deny any right or remedy that the non-excluding party may have against the party seeking to rely on the clause. If valid and enforceable, it can absolve the party from any legal obligation or liability associated with the specified events or circumstances.

Limitation Clauses

Purpose: A limitation clause, on the other hand, is a contractual provision that seeks to limit the amount of liability that a party may be responsible for in case of a breach or specified events. It sets a maximum limit or cap on the damages or losses that can be claimed.

Scope: A limitation clause typically applies to specified types of losses, damages, or obligations. It does not seek to exclude liability entirely but rather restricts or "limits" the amount of liability that can be claimed, even if a breach or specified event occurs.

Effect: A valid and enforceable limitation clause caps the amount of damages or losses that can be recovered by the non-limiting party. It does not absolve the party entirely but rather sets a threshold beyond which the party's liability cannot exceed.

In summary, exclusion clauses aim to exclude or eliminate liability entirely for specific circumstances, while limitation clauses seek to limit the amount of liability that can be claimed. Exclusion clauses remove the possibility of a claim, while limitation clauses establish a cap on the amount of damages that can be recovered.

You can learn more about this topic and relevant case law with our Contract Law notes.

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