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Exclusion Clauses

A business may try to exclude or limit liability for things that might go wrong by including an exclusion or limitation of liability clause within a contract with another business. In certain cases, businesses will use an exclusion clause to allocate risk and work out who is responsible for insuring that risk.

A Court will interpret an exclusion clause in business to business contracts like any other clause, according to its plain and ordinary meaning, as long as it is properly incorporated into the terms of the contract [1].

If any onerous clause, such as an exclusion clause, is not drawn to the attention of the contracting party, there is a danger that the clause will be unenforceable. Therefore, it is important to ensure that all terms and conditions are brought to the attention of the other business, and that business given an opportunity to accept or reject the clause. Merely having printed terms and conditions that are not available at the commencement of the contract may not be sufficient.

In situations where an exclusion clause is ambiguous, or the weaker party is in need of protection, the Court will interpret the clause in accordance with the contra proferentum rule, that is, against the party that seeks to rely on it.

Businesses should also take care when goods and services they supply come under the consumer guarantees provision of the Australian Consumer Law.

Section 64 of the Australian Consumer Law (ACL) renders void any term of a contract that purports to exclude, restrict or modify a consumer’s rights to rely on the consumer guarantee regime.

Section 64A ACL permits modification of rights in certain circumstances, by allowing a supplier to limit the remedies available to the consumer if, and only if, the contract is for goods or services that are not ordinarily for personal, domestic or household use. So, if a business is supplying business type products to another business, the supplier can rely on the S64A. The limits on the remedies include replacement, repair or payment of the cost of replacement or repair (for goods) or supplying the services again or paying for them to be supplied again (for services). Section 64A(3) also imposes a reasonableness test regarding the imposition of the clause, and the supplier bears the onus of proving ‘reasonableness’.

Professional advice should be sought to ensure that standard form contracts that include exclusion or limitation clauses, whether used for business to consumer transactions or business to business transactions, do not breach the Australian Consumer Law.

[1] Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500

Exclusion Clauses  :  Last Revised: Fri Nov 17th 2017
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