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This Act limits the applicability of an Exclusion clause in a contract; specifically it applies to:

• clauses that attempt to limit liability for negligence, and
• clauses that attempt to limit liability in breach of contract

It is a complication that the Act applies only to exclusion clauses of the meta described above; it does not apply to clauses that define the duties of the contracting parties. There is, therefore, some scope to define exclusion clauses as duty-defining clauses and escape the legislation. Courts have, on the whole, acted in accordance with the spirit of the Regulations, and disallowed such technical manoeuvring. The main provisions are as follows.

• Any clause that attempts to restrict negligence liability for personal injury or death is void
• Any clause that attempts to restrict negligence liability for loss or damage void unless shown to be 'reasonable' (see below).
• Any clause that limits liability for breach of contract, where the contract refers to standard terms or conditions, or one of the parties is a consumer, will be void unless 'reasonable'
• Any clause that requires a consumer to indemnify any other party (whether a party to the contract or not) for negligence of breach of contract will be void unless 'reasonable'.

Naturally the Regulations do not attempt a strict definition of 'reasonable', but they do have this to say on the subject:

• reasonableness will be assessed with reference to what the parties could be expected to know when the contract was formed, and

• the reasonableness criterion will act in favour of a party with relatively weak bargaining power, and

• a clause is more likely to be assessed as reasonable if the party affected could have acted to protect himself, e.g., by insurance,

• the burden of the proof of reasonable lies with the propounder of the clause; it is not for the person affected to prove unreasonableness.

The 'reasonableness' test introduced by this statute is also incorporated into disclaimers of liability for Misrepresentation by s2(1) of the Misrepresentation act (1967).

See: Exclusion clause, Phillips products v hyland (1987), ProductLiability