When contracting with another party, you want to ensure you are taking on minimal risk for your business. An ideal scenario is one where you have no liability to the other party for anything that goes wrong in your dealings. However, there are relevant laws you should be aware of. When reviewing or drafting a contract and its liability clauses, the varying terminology can be confusing. This article will explain what disclaimer and exclusion clauses are, their differences, and their enforceability.
What is an Exclusion Clause?
An exclusion clause, a limitation of liability clause, seeks to limit a party’s liability under a contract. There are varying types of limitation clauses, which we explain below.
Restrictions on Type of Loss
This clause limits the type of liability you are responsible for under the contract. Consequential loss is the most common type of liability that is excluded. It includes losses such as:
- goodwill;
- reputation; and
- savings.
Consequential losses are indirect losses flowing from an incident, while direct losses are the more foreseeable results of a breach or incident.
Exclusion of All Liability
This is the ability to exclude a party’s liability under the contract. However, you should be aware that there are certain circumstances in which you cannot completely exclude your liability, such as under the Australian Consumer Law.
Liability Cap
This is the ability to restrict the extent of your liability to a monetary figure.
Entire Agreement Clause
This clause states that the agreement being signed contains all the dealings between the parties. It restricts each party’s liability to what is included in the contract. Therefore, you exclude any promises made or warranties given outside the agreement.
What is a Disclaimer?
A disclaimer is ordinarily the overarching document or statement which denies legal responsibility. It usually excludes liability clauses and a range of other terms that protect your business, such as exclusions of warranties. It is essential as it protects your business from any claims relating to the goods or services you have provided.
Another time that you should use a disclaimer is when you provide services that may be mistaken for advice. For example, if you provide relaxation massages, you may want to provide a disclaimer that you are not a health professional and that your services are not a substitute for visiting a physiotherapist or chiropractor.
Similarly to exclusion of liability clauses, not all disclaimers are enforceable, and you cannot contract out of all your obligations. When the ACL applies or when your company has a standard form contract that regulators may review for unfair contract terms, this is particularly important.
Continue reading this article below the formEnforceability of Exclusion Clauses and Disclaimers
The ACL outlines consumer guarantees that you cannot limit, restrict, or exclude. Therefore, any waivers, disclaimers, or exclusion clauses will not apply if they conflict with the ACL.
Similarly, any contracts caught by the unfair contract terms law may have their clauses deemed unfair and, therefore, unenforceable. An unfair contract term causes a significant imbalance in the rights and obligations of the parties, is not reasonably necessary to protect the legitimate interests of the business and causes detriment to one party if the other party seeks to rely on it. Clauses that exclude or limit one party’s liability are considered unfair contract terms.
Generally, you should allow your customers to read and understand a contract and then show that they accepted it, whether through a clickwrap or physical signing.
If you are a company director, complying with directors’ duties are core to adhering to corporate governance laws.
This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.
Key Takeaways
When you draft or review a contract, you must manage your risk. Start by drafting disclaimers, waivers, and exclusions of liabilities. Additionally, you should know the legislative frameworks you must follow, especially when providing consumer goods.
If you need help understanding the difference between a disclaimer and an exclusion clause, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A disclaimer denies legal responsibility and protects a business from claims related to its goods or services. An exclusion clause limits a party’s liability under a contract by restricting types of loss, capping liability, or excluding liability in certain situations.
An exclusion clause limits a party’s liability in a contract. It can restrict liability to specific types of loss, cap liability at a certain amount, or exclude all liability, though some liabilities cannot be excluded under laws like the Australian Consumer Law.
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