How the Australian Consumer Law Interacts with Exclusions and Limitations of Liability

1. Introduction

Exclusions and limitation clauses are a common way to manage and allocate risk in contracts.

Exclusion clauses state what obligations a party to a contract can avoid, or what potential costs or losses that party will not cover. Limitation clauses state that the party will only pay for such losses or costs up to a certain amount.

It is important to remember, though, that not all exclusion and limitation clauses are enforceable. Even if parties agree that one of them will not cover a certain cost, the law may override this agreement.

One law that puts fairly strict boundaries on limitations and exclusions is the Australian Consumer Law (ACL). Two key sets of boundaries apply for:

  1. Consumer guarantees; and
  2. Unfair contracts.

This article aims to provide an overview of how these boundaries operate.

A. Consumer Guarantees

The Australian Consumer Law (ACL) imposes certain guarantees on businesses who supply goods or services to consumers.

Generally, any person who buys goods or services for $40,000 or less, is a consumer. The consumer guarantees imposed by the ACL include:

  • a guarantee of acceptable quality of goods;
  • a guarantee of due care and skill in the supply of services; and
  • guarantees that goods and services will be fit for their purpose.

In most cases, you can’t limit or exclude ACL consumer guarantees in your contract with a consumer. However, certain limitations of liability are allowed, for example where liability is limited to:

  • the repair or replacement of faulty goods;
  • payment of the cost of repair or replacement;
  • resupplying an inadequate service; or
  • payment of cost of resupplying the service.

B. Unfair Contracts

Unfair contracts provisions of the ACL make certain exclusions and limitations in standard form consumer contracts unenforceable.

2. What is a Consumer Contract?

A consumer contract has two elements. Firstly, it is a contract for the supply of goods or services; or a sale or grant of interest in land.

Secondly, the supply, sale or grant is to an individual, whose interest is wholly or predominantly personal or domestic.

3. What is

a Standard Form Contract?

There are no hard and fast rules for defining a standard form contract. If a consumer alleges that a contract is standard form, the other party to the contract has to show that it is not. The court can take into account any factors it thinks are relevant. Relevant factors include:

  • whether one of the parties has all or most of the bargaining power; and
  • whether the contract was prepared by one party before the parties had even discussed the transaction.

4. When are Exclusions or Limitations Unfair?

There are three main elements to unfairness in a contract term:

  • it causes imbalance between the parties rights and obligations;
  • it is not reasonably necessary to protect the legitimate interests of the party who would gain an advantage from it;
  • it would cause detriment to the other party.

Courts’ discretion in assessing unfairness is very wide. They look at allegedly unfair terms in the context of the contract as a whole. In particular, courts take account of how transparent the meaning of the term is.

The ACL gives numerous examples of unfair contract terms and these include two specific kinds of exclusions. Exclusions that let one party choose arbitrarily not to perform its obligations may be unfair, and therefore unenforceable. Likewise, excluding vicarious liability for the acts of employees can be unenforceable. All kinds of exclusions and limitations, however, can be unenforceable if they ultimately turn out to be unfair.

5. Takeaway Points

  • You cannot generally use exclusions or limitations to get out of consumer guarantees imposed by the ACL.
  • There are some exclusions and limitations that are consistent with consumer guarantee law.
  • Some exclusions or limitations may be unenforceable if they are unfair contract terms.
  • Unfairness is determined in the context of a contract as a whole, with reference to multiple factors.
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