A contract is a legally binding agreement between two or more parties that creates rights and duties. Certain risks arise for all parties involved upon the creation of these duties. The most common risk is that one of the parties will not perform the contract terms. The risk may be far more significant for one party than for another. A way to balance or apportion the risk is to use an exclusion clause or limitation of liability clause. It is important to remember that you may not be able to use certain types of exclusion clauses concerning consumer guarantees under the Australian Consumer Law.
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What is an Exclusion Clause and What Does it Do?
An exclusion clause is also known as a limitation of liability clause. It allows a party to a contract to limit their liability in different ways, as set out below:
Types of Exclusion Clauses
| Type of Limitation | Explanation |
| Exclusion of all liability | If you exclude your liability altogether, to the extent permitted by law, you will not be liable for anything that goes wrong for any reason. Unless both parties exclude their liability in this regard, this may be considered an unfair contract term. Accordingly, it should not be included in a contract, as it could be unenforceable depending on the circumstances, and penalties may apply in due course. There are also certain instances where you cannot exclude your liability completely, for example, concerning consumer guarantees under the Australian Consumer Law. You may also be unable to exclude your liability for death or personal injury arising from your negligence or willful misconduct if you owe the other party a duty of care. |
| Exclusion of liability for certain events | This kind of exclusion limits your liability in certain circumstances. For example, suppose you are supplying goods to customers. In that case, you can limit your liability if there is a delay in providing the goods to the customer, where circumstances beyond your reasonable control cause the delay. |
| Limitations placed on the total liability | This is also known as a liability cap. You can limit your total liability under the contract to a maximum amount. For example, if you have limited your total liability to $100,000.00, the other party cannot claim more than $100,000.00 from you if you breach the contract. |
| Restrictions On the Types of Loss That Are Recoverable | This kind of exclusion excludes your liability for certain kinds of loss that may arise due to your actions/inaction. The most common exclusions of this kind are exclusions of consequential loss and exclusion of loss caused by negligence. |
| Time Limitations | You can include in a contract that you will only be liable under the contract for a certain period or that parties must lodge any claim within a certain period. |
Enforceability
To be enforceable, you must incorporate your exclusion clause into the contract. You can do this by having both parties sign the written contract, which includes the exclusion clause/s. The document must be a contract and not, for example, a permission slip.
Alternatively, suppose the agreement is not in writing. For example, when you drop clothes off at the dry cleaner and receive a receipt from them. Accordingly, the party wishing to rely on the exclusion must give reasonable notice to the other party. In this case, the dry cleaner must show that they took reasonable steps sufficient in the circumstances to give you notice of the exclusion clause. They must provide this notice before or when entering the contract.
You must also give reasonable notice regarding the exclusion clause as set out below. There are also requirements under the Australian Consumer Law if any clauses (including exclusion clauses) in a contract are unfair. Exclusion clauses will not be enforceable if they are unfair. Additionally, penalties may apply if unfair contract terms are included in an agreement.
Specific Agreements and Exclusion Clauses
Consumer Contracts
Businesses supplying goods and services to consumers often use exclusion clauses to limit liability when something goes wrong. Depending on the circumstances of the case, the courts recognise there is an imbalance of power between the parties. Accordingly, they tend to interpret the contracts against the party that drafted them (the businesses).
Click-wrap and Browse-wrap Agreements
A click-wrap agreement is one where a party makes the terms of the contract visible to the other party online. There is usually a “button” directly underneath the terms with words such as “I accept” that the user must click to agree to the terms. A click-wrap agreement does not present much difficulty in including an exclusion clause. The party who clicks the button indicates his or her acceptance of the terms and conditions of the agreement in much the same way as one would when signing a contract.
A browse-wrap agreement is one where a party can locate the terms and conditions of the agreement on another webpage. A link is provided to these terms and conditions. In these circumstances, the party wanting to rely on the exclusion clause must show that they gave the other party reasonable notice of the terms and conditions. The court will consider whether the party who wants to rely on the terms and conditions, particularly the exclusion clause, took reasonable steps to draw the terms to the other party’s attention. It is best practice to ensure that the other party cannot proceed without first reading the terms and conditions.
Key Takeaways
Overall, you must ensure your exclusion clause contains all necessary requirements to protect your commercial interests. Accordingly, the type of exclusion clause will depend on the nature of the contract you are entering.
If you need help with exclusion clauses, 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
An exclusion clause allows a party to a contract to limit their responsibility if an incident negatively impacts the other party.
Your business may consider limiting your liability by including one of the exclusion clauses listed above. These exclusions should be included in your online terms and conditions. Additionally, it is essential that your customers both read and understand the terms and conditions before acceptance.
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