The case at the start of the thread says the pilot was negligent for not taking the opportunity to land when he safely could. But he wasn't found liable. Isn't that one of the primary aims of the legislation?
As to the exception, the way I read it, if, for example, the pilot of the recreational aircraft takes off knowing there is insufficient fuel on board for the planned flight (thereby breaching a regulatory code for the protection of personal safety i.e. the Civil Aviation Regulations) and the passenger is injured during the inevitable forced landing after fuel exhaustion, the pilot would
not be protected from liability.