Exclusion clause

An exclusion clause (or exemption clause) is a provision in a contract included by a party to try and exclude or limit their liability for conduct that would otherwise breach the contract or constitute a tort.

There are three key types of exclusion clause:

1. True exclusion clause

Where a breach of contract is recognised, liability is fully excused.

2. Limitation clause

Where a breach of contract is recognised, a limit is placed on the amount that can be claimed, regardless of the actual loss.

3. Time limitation clause

Where a breach of contract is recognised, an action for the claim must be commenced within a certain period of time, or the cause of action will be extinguished.

In determining whether or not an exclusion clause should be upheld, we first look to statute, then the prevailing common law test, and then a rule for interpretation.

  1. Exclusion clauses are subject to regulation under section 64 of the Competition and Consumer Act 2010 Schedule 2 (Cth), which stipulates that suppliers cannot exclude or disclaim product or service guarantees.
  2. However, where the Act does not apply, common law says that a party can rely on an exclusion clause for its benefit if the exclusion clause is properly incorporated into the contract, and can be construed to apply to the issue in dispute (Darlington Futures v Delco Aust).
  3. If ambiguity remains after applying the test laid out in Darlington Futures v Delco Aust, the contra proferentemrule applies. This dictates that the exclusion clause will be read against the interest of the party trying to rely on it.