The Interpretation of Exclusion Clauses and the 'No Mere Declaration of Intent' Rule in English Contract Law

Exclusion clauses in commercial contracts are an essential tool for the risk management of companies with respect to contractual transactions, providing a means of controlling and reducing their overall exposure to otherwise unlimited contractual liability, for which there are few, if any, viable alternatives. English contract law, in turn, probably owes its popularity as the governing law of choice in international commercial contracts inter alia to its liberal stance in relation to the enforceability of exclusion clauses. Apart from the 'fraud exception', which is narrowly applied by the English courts and seemingly covers only fraudulent misrepresentations and not fraudulent breaches of contract (see, for example, Innovate Pharmaceuticals Ltd v University of Portsmouth Higher Education Company [2024] EWHC 35 (TCC), para 119), English common law does not stipulate any further mandatory restrictions. Remarkably from a comparative law perspective, it hence permits even the exclusion of liability arising out of or related to a commercial contract in the event of intentional misconduct (Scottish Power v BP Exploration Operating Company Ltd [2015] EWHC 2658 (Comm), para 170). The statutory control of exemption clauses in form of the Unfair Contract Terms Act 1977 (UCTA), in turn, not only excludes from its scope of application most international commercial contracts (s. 26, 27 UCTA). Even if the UCTA 1977 comes into play, more recent case law has approached the application of the 'reasonableness test', that constitutes the core pillar of the Act’s policing of exclusion clauses, with significant latitude—at least where the exclusion clause in dispute has been agreed between commercial parties of similar bargaining power (see for a case in point Benkert UK Limited v Paint Dispensing Limited [2022] CSIH 55, paras 63 ff.). 

Traditionally, in the absence of sufficient substantive rules, English courts have used contract interpretation as a tool to cut back on overly broad exclusion clauses. However, many of the specific rules designed to restrict their impact, such as the ‘contra proferentem rule’ (a rule that provides that ambiguity in a term should be construed against the party that drafted it) and the Canada Steamship Rules (which, in essence, request an explicit reference to negligence in exclusion clauses in order to exclude or limit liability based on negligence), have since long fallen into disrepute. Although not fully abolished, the UK Supreme Court has explicitly indicated their deprecation and subsumption under the more flexible Gilbert-Ash principle, which stipulates a rebuttable presumption (subject to clear express words stating otherwise) that neither party intends to abandon any remedies (Triple Point Technology Inc v PTT Public Company Ltd [2021] UKSC 29, paras 107 ff.).

However, one restrictive rule of interpretation, though still an instrument of last resort, has not only withstood the test of time, but may even be expanding: Courts will interpret exclusion clauses in a way so as not to render corresponding contractual obligations meaningless by effectively reducing them to mere declarations of intent. Traditionally, this rule of interpretation could only apply when 'the effect of the clause is to relieve one party from all liability for breach of any obligation which he has purported to undertake' (Transocean Drilling UK Ltd v Providence Resources plc [2016] EWCA 372, para 27): Pursuant to this view, the relevant question is apparently not whether the innocent party would have adequate remedies in the event of a breach of a certain obligation by the other party but whether or not a certain construction of a clause 'would deprive the contract... of all contractual force' (Fujitsu Services Ltd v IBM United Kingdom Ltd [2014] EWHC 752 (TCC), para 61; approvingly Motortrak Ltd v FCA Australia Pty Ltd [2018] EWHC 990, para 129). 

As such clauses appear to be rather rare, the 'no mere declaration of intent rule' of contract interpretation also seems to be of limited relevance. 

However, more recent judicial statements show a tendency (probably giving rise to a conflict of authority that needs to be resolved by the UK Supreme Court at some point) to invoke this principle if an exclusion clause would otherwise eliminate (or substantially undermine) liability for the breach of a specific contractual obligation (rather than the contract as a whole). This is at least if the relevant contractual obligation is a 'key provision', the breach of which could otherwise be committed without incurring liability, thereby 'undermining the bargain' between the parties (see the minority opinion of Phillips LJ in EE Limited v Virgin Mobile Telecoms Limited [2025] EWCA 70, paras 105 ff.). In EE Limited, Phillips LJ referred to the rule as one of the reasons why, in the absence of realistic, viable other contractual remedies, a contractual exclusion of liability for 'anticipated profits' should not apply in relation to a claim for lost charges due to a breach of an exclusivity obligation. An older decision of the Court of Appeal probably points in this direction as well (Kudos Catering (UK) Ltd v Manchester Central Convention Complex Limited [2013] EWCA Civ 38, para 27, note that the exclusion clause in dispute here was considered to cover only cases of defective performance rather than non-performance). In another recent judgment, the High Court ruled that a broad exclusion clause in a contract for the provision of digital payment services, which excluded liability of the service provider for both direct and indirect damages, could not be interpreted as extending to the provider’s duty to reinstate the customer in the event of a breach of its 'quincecare duty'—such an interpretation would, among other things, effectively rewrite the service provider’s primary obligations (Hamblin v Moorwand Ltd [2025] EWHC 817 (Ch) para. 25). Although the reasoning given is brief, this decision potentially suggests as well that the 'no mere statement of intent rule' may already apply when the contractual force of (only) a key contractual obligation is at stake, rather than the entire contract. 

If the apparent rationale of the rule is duly taken into account, which is presumably to resolve an existing contradiction between binding contractual obligations on the one hand and the removal of (any or almost any) legal consequences for their non-compliance on the other through an exclusion clause for the benefit of the debtor within the same contract, it is indeed difficult to see why the rule should be limited to clauses that may render the entire contract ineffective.

It has been said that the 'no mere statement of intent rule' may come dangerously close to the reintroduction of the (since long abolished) substantive rule that the parties cannot agree to exempt liability for a fundamental breach of the contract (Peel, The Law of Contract, 16th edn 2025 para 7-026). But the rationale of this rule would appear to be a different one. From a drafting perspective, the parties can easily avoid the potential hardship of its application by agreeing on a monetary cap on liability instead (or in addition to) the complete exclusion of any or specific heads of damages.

Patrick Ostendorf is a Professor of Commercial Law at the HTW Berlin and Of Counsel at Orka Rechtsanwälte, Berlin.