A limitation of liability clause places a limit on how much a business can be liable for if things go wrong. For example, consider a supplier who agrees to pay no more than $10,000 if their product or service causes a problem, no matter how big the damage is.
This is good for the supplier because it prevents them from losing too much money if something goes wrong. But it can be risky for the buyer. If the damage caused is $20,000, the buyer is stuck covering the extra $10,000 beyond the limit.
Limitation of liability and consequential loss exclusion clauses are prevalent in the majority of industries in Australia. Without a contractual limit of liability in place, your company may face serious financial difficulties if something goes horribly wrong with one of your many clients, especially if you provide goods or services to a large number of them.
In Australia, there is no set or statutory amount that limits liability. Rather, the sum is specified within the contract itself, provided that the parameters such as reasonableness and enforceability are compliant with Australian Consumer Law (ACL). Despite that, some key parameters affect the extent of limitation that is permitted:
Negotiated Caps: There is the option that the parties agree on a monetary cap such as a percentage of the value of the contracts or a fixed dollar amount.
Insurance-Linked Caps: Apart from relevant liability caps, liability may be limited to the amount of insurance coverage available.
Consumer Contracts
Unlimited Guarantees on Offers: Exclusion of liability is not permissible for the violation of the statutory guarantees, which are consumer guarantees of acceptable quality, etc. But businesses can limit liability for non-major failures to:
- Repair or Replacement of Goods; or
- Re-supply of services or the cost thereof.
There is no limit set forth, but compensation is restricted by the scope of resolution available, for instance, provision of repair or payment of a set amount in damages.
Personal injury or death
Prohibited Exclusion: Liability for personal injury or death due to negligence cannot be limited or excluded.
Difference between a limitation of liability clause and an insurance claim
It’s common to mistake an insurance clause for a limitation of liability clause. It is crucial to keep in mind that a limitation of liability clause and any insurance requirements outlined in a contract are not the same thing.
Regardless of whether a business is insured or not, a limitation of liability clause may be used to restrict its liability. In a similar vein, an insurance clause may not serve to limit a company’s liability; rather, it may define the minimum amount of insurance that the company must maintain.
Australian contracts frequently contain clauses that limit responsibility and exclude consequential damage. Because they are complex, it’s critical to have someone who knows them examine, negotiate, and write them. They can be both friends and enemies.
United Legal Canberra is here to assist you. For more information, call us at (02) 9161 684283 or email us at admin@unitedlegal.com.au. Scheduling an appointment takes just a few minutes.
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