A common way of apportioning risk in a contract for goods or services is for the parties to exclude/restrict their liability to one another should one party default under the contract.
Suppliers are unable to exclude their liability for breaches of consumer guarantees. Under Australian Consumer Law, consumer guarantees ensure that when you buy products and services, they come with automatic guarantees that they will work and do what you asked for.
Notably, in a business-to-business relationship, a party can in some circumstances limit its liability to the other.
In order to do this, it’s important to use clear language when drafting clauses that intend to limit or exclude liability. To avoid clauses that can be considered ambiguous or unclear, it is in the interest of the party who is seeking to avoid liability to spell out the exact areas of liability being limited or excluded.
This may include a supplier clearly outlining that it will not be taking responsibility for particular activities e.g. not being liable for failings in third party networks or systems or for verifying a purchaser’s specifications.
When parties intend to exclude liability for more serious risks including negligence or repudiation of a contract, the clauses should specifically state the liability for those matters are excluded.
Too often contracts include general wording such as “all liability is excluded” and this will generally not, extend so far as to apply to limit tor exclude liability for negligence or repudiation.
If it is found that a clause is ambiguous or unclear, a Court will construe it against the party that is seeking to rely upon the clause.
With respect to excluding or limiting liability in franchising agreements, this is governed by the Franchising Code of Conduct. Section 3.1 of the Code provides that agreements between franchisors and franchisees must not contain any releases or waivers with respect to general liability towards the franchisee.
If, and when, a party engages in misleading or deceptive conduct to entice another party to enter into a contract, and this amounts to a breach of the Australian Consumer Law, any limitations or exclusions of liability sought to be relied upon will likely be unenforceable at law.
General considerations when considering exclusions/limitations of liability
- Use unambiguous language;
- Expressly identify the types of liability you wish to exclude;
- Ensure that general words such as “other” and “including” do not disrupt the intention of the clause;
- Use separate and precise clauses which assist in breaking down the issues for ease of analysis and severability;
- Make sure that an appropriate remedy is available upon any breach;
- Continue to monitor the sector you are operating in as context is everything. A clause is more likely to be accepted and considered reasonable if it is widely practised in a given industry.