Freedom of Contract vs. Exemption Clauses: A need for Predictability

Abstract

The notion of freedom of contract is a fundamental one that gives parties right to incorporate any term they desire. As a result, contracts consist of terms to limit or exclude liability of one party to the contract. Such a party who gained by the inclusion of exemption clause (EC) has been generally the stronger party to the contract and it was even worse in standard form contracts. A large number of cases in this area of law resulted in the formulation of certain principles in dealing with them. Nevertheless it is hard to see some uniformity in the cases decided. Parliament intervened to regulate the EC and thus, the Unfair Contracts Terms Act 1977 of the UK (UCTA–UK) or the similar Unfair Contracts Terms Act No.26 of 1997 of Sri Lanka (UCTA–SL) were enacted and attempted to resolve certain issues by introducing the test of reasonableness into the law. However, have all the uncertainties been settled, and are these statutes striking a balance between the principle of freedom of contract and abuse of it by the acceptance of EC are the questions to be analyzed.