The disclaimer clause in the contract limits liabilities for certain losses or damages that one of the parties may incur. It may also limit the liabilities that a business may incur on other types of losses or damages that are not covered by consumer guarantees.
The purpose of the Disclaimer clause is to clarify and allocate risks relating to the performance of the contract or agreement. This can also help to protect the parties from potential legal liability in case of errors, inaccuracies, or other issues that may arise during the performance of the contract.
In this article, we explain what is a Disclaimer Clause, where does it apply and what are its limitations.
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Applicability and Governing law:
Australian Consumer Law (ACL) and other relevant laws and regulations govern the application of the Disclaimer clause. This applies to all businesses that supply goods and/or services in Australia. Disclaimer clauses also apply in other contracts like service agreements, sales agreements, lease agreements, and many other types of contracts.
The Australian Competition and Consumer Commission (ACCC) on the other hand, is the independent government agency that is responsible for the enforcement of consumer protection laws in Australia.
Consequences of Absence of a Disclaimer Clause in a contract:
If the contract doesn’t include a disclaimer clause, the following could be the possible consequences:
1. Consequential or Indirect losses are not a direct or foreseeable result of the harm suffered (e.g. profit or opportunity losses)
2. Incidental losses arising from reasonable expenses incurred in connection with the contract or agreement. This includes expenditures that an innocent party incurs in attempting to minimize the loss arising from the breach.
3. Reputational harm affects the image of the business such as losses related to damage to reputation or loss of goodwill.
4. Losses suffered by third parties, such as customers or suppliers, in connection with the contract or agreement.
5. Losses incurred as a result of a breach of the terms of the contract (e.g. failure to deliver goods or services)
In the case of Brookfield Multiplex Ltd v Owners Corporation Strata Plan No 61288 (2014) the High Court of Australia ruled that a disclaimer clause in a contract for building construction was enforceable in a case where the Owners corporation suffered consequential losses due to construction defects. The builder was held not liable for the losses.
Moreover, in case Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) which involves a contract for the construction of a railway line. The court held that the disclaimer clause was enforceable and that the contractor was not liable for losses that were not a direct and foreseeable consequence of the breach.
Limitations of Disclaimer clause
- When drafting a Disclaimer clause, it’s crucial to ensure that it complies with Australian law and clearly outlines the limits of liability. A clause that seeks to exclude or limit liability for illegal or fraudulent conduct is not valid.
- The Disclaimer clause must be in accordance with the guarantees provided under ACL. Hence, even if there is a disclaimer clause, but it violates the guarantees provided by ACL, these guarantees will prevail over the disclaimer clause. Examples of these are guarantees as to title, undisturbed possession, and quiet enjoyment. Also an example is the availability of spare parts, repair facilities, and express warranties. Thus, if a product or service doesn’t fulfill these guarantees, the consumer has the right to a repair, replacement, or refund, and the business cannot evade liability through a disclaimer.
- The ACL prohibits businesses from using disclaimer clauses to restrict or eliminate their liability for consumer guarantees. Because, these are a set of statutory rights that customers possess when buying goods or services.
- It must not be used to limit liability for conduct that is considered to be unconscionable under the ACL. Unconscionable conduct is conduct that is unethical, oppressive, or exploitative, and causes significant imbalances in bargaining power between the parties.
- Disclaimer clauses must be written in a clear, conspicuous, and transparent fashion. Further, it must be simple to read and comprehend, and the display must be easily visible to customers.
Warman International Ltd v The Slide-On Campers Pty Ltd (2002) case concerns the validity of a disclaimer clause in a contract for the provision of goods. The court held that the disclaimer clause was not enforceable since it was not expressed in simple language and was not prominently exhibited.
Moreover, the court in Ha v New South Wales (1997) held that the disclaimer clause was unenforceable. This is because it attempted to exclude liability for all losses, including those that were foreseeable at the time of contracting.
How can Prosper Law help?
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If you need a business contract lawyer that will work with you to write a business contract which includes a clear disclaimer clause, contact us today for a no-obligation quote.
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