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Exclusions clauses are used to limit liability for an occurrence that would otherwise lead to a claim for damages.

Often, exclusion clauses are there to ensure that if something goes wrong, a business doesn’t completely fall apart. However, having an exclusion clause doesn’t mean you don’t have to be careful. This is because there are still rules regarding how they can be used.

Keep on reading to know how you can use an exclusion clause in your contracts, and how they can protect your business.

What Is An Exclusion Clause?

An exclusion clause is placed in agreements by businesses so they can limit their liability in the event an incident occurs where they can be held liable. There are many different ways exclusion can be exercised.

It’s commonly done by:

Placing a time limit for a claim
Putting a cap on the amount of damages that can be paid
Excluding certain types of losses

What Is Liability?

Liability is the legal responsibility one party has towards another party. In business, the owner of a business is liable for the safety of their customers and staff to a certain degree. This is due to the fact employers have a responsibility to make sure they are supplying products, services or creating an environment that is free of harm.

An employer may also be liable for the conduct of their employees – this is known as employers’ liability.

Liability differs depending on business structure as well. For example, a company will have limited liability and therefore stronger protections than that of a sole trader or partnership.

If a business is found to be liable for something, the grieved party can usually bring the matter before courts in order to claim damages.

How Can I Limit Liability?

In the event an incident or mistake occurs, businesses often like to have exclusions clauses in their agreements. Exclusion clauses can aid in making sure a business isn’t run to the ground if something bad happens. However, it needs to be within reason.

Exclusion clauses will likely not hold up if a business was negligent in their actions and caused harm to another party due to this.

Some businesses may choose to have a limitation of liability clause, which is slightly different to exclusion clauses due to the degree of protection it provides for your business (we’ll cover this in more detail shortly).

How Does An Exclusion Clause Work In An Agreement?

As we mentioned above, exclusion clauses will usually work in three main ways – by placing limits on time, loss and the amount of damages that can be claimed.

Example
Taylor is going skydiving. Prior to the event, she signs a contract that contains an exclusion clause limiting the liability of the business if something goes wrong during the jump.

During the landing, Taylor’s ankle twists slightly which causes it to sprain. As the contract Taylor signed contained an exclusion clause for such events, she isn’t able to claim damages.

Exclusion Clauses Under The Australian Consumer Law

The Australian Consumer Law (ACL) maintains that while exclusion clauses are permitted, it must be consistent with legal regulations. Therefore, if an exclusion clause interferes with a consumer’s rights, it will likely not be enforced by the courts.

Exclusion clauses are usually interpreted against the party seeking to rely on it. If it’s found to sustain a valid objective, only then can the clause be enacted.

Exclusion Clauses And Disclaimers

Disclaimers can also contain exclusion clauses. However, in line with the ACL,if a disclaimer is found to have contained information that wasn’t entirely true or didn’t contain information that needed to be disclosed to the consumer, then it is likely to amount to misleading and deceptive conduct.

This is a breach of the ACL and it’s likely to render the exclusion clause invalid.

It’s important for Australian businesses to understand the ins and outs of their obligations under the ACL.

Example
A company manufactures protein bars. On their products, they have a disclaimer where they maintain they cannot be held liable for any allergic reactions. The bar contains traces of peanuts and they fail to disclose this on the ingredients list.

Eventually, a customer with a peanut allergy claims damages from eating the bar and getting a reaction. In this scenario, it’s likely the disclaimer won’t hold up as their failure to disclose important information was a breach of their consumer rights.

What Does An Exclusion Clause Look Like In A Contract?

In a contract, exclusion clauses can appear differently depending on the nature of the contract and the clause itself. However, the wording should be clear and unambiguous, clearly letting both parties know the terms of the agreement (as with any contract).

For example, an exclusivity clause can say “x company does not take responsibility for any incidents resulting from…”. However, it’s vital that you have these kinds of clauses reviewed by a lawyer to ensure it is enforceable under Australian law.

When Do I Need An Exclusion Clause?

Exclusion clauses should always be placed in written agreements, prior to the exchange between the parties occurring. If someone is making a purchase or hiring your business for a service, they should be altered to the clause prior to finalising the deal.

What About An Exclusivity Clause?

An exclusivity clause is very different to an exclusion clause, however, they are both still used in business contracts.

An exclusivity clause is used to manage competition as opposed to liability. For example, if a business has an agreement with a supplier, they may place a liability clause to prevent them from working with another business in that locality for a certain amount of time. It can also stipulate that they can only do business with you exclusively.

Much like exclusion clauses, exclusivity clauses also need to be reasonable in protecting the business’ interest and not evading the rights of the other party.

What Is A Limitation Of Liability Clause?

A limitation of liability clause places a cap on how much a business can pay in damages. If a business is found to be liable for damages, then a limitation of liability clause places a maximum amount they can pay to the grieved party.

For example, a $100,000 cap on a limitation of liability clause can ensure damages are still paid if a business is at fault. However, the cap amount can save their business from total financial ruin.

Need Your Contract Reviewed?

There’s certainly a high bar for the circumstances where a party can rely on an exclusion clause. However, it’s still recommended to get one in your agreements as they can be very useful.

It’s best to get an exclusion clause drafted by a legal professional to ensure the clauses can work for you – talk to us today about getting your contracts reviewed for exclusion clauses.

To summarise what we’ve discussed:

Exclusion clauses are placed in agreements to limit the liability of one party
Exclusion clauses can place a time limit on when damages can be brought forward or the types of loss covered
Disclaimers are also a type of exclusion clause, however, they must also abide by the ACL
Exclusivity clauses are also used in business agreements, however, they are more commonly used to address potential competition as opposed to liability.

If you would like a consultation on exclusion clauses, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

Sapna Goundan

Sapna has completed a Bachelor of Arts/Laws. Since graduating, she's worked primarily in the field of legal research and writing, and she now writes for Sprintlaw.

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