What are they?
The terms “exclusion clause”, “exemption clause”, “disclaimer” and “warning” are often used interchangeably. Generally they refer to statements that are intended to limit the liability of a person or other legal entity in the event of something going wrong.
The following information explains what these terms are, when you are likely to use them or come across them and the effectiveness of such statements.
You will note that exclusion clauses, exemption clauses, disclaimers or warnings are not always effective in excluding liability of the person or entity relying on it.
Exclusion Clauses
Exclusion clauses are generally found in contracts. These types of clauses operate to exclude or restrict the rights of a party. For example when a party to a contract wishes to limit their liability in the event that they breach the contract they will usually include an exclusion clause, limiting the amount that the other side can claim to a specified total. Sometimes a party may include a provision attempting to exclude all liability for a certain thing that could go wrong, for example – a glass sculpture being damaged whilst in transit.
Exclusion clauses may also be called ‘exemption’ or ‘exception’ clauses. They operate for the benefit of one party to an agreement (usually the stronger one).
When are they effective?
Generally, in order for an exclusion clause in a contract to be effective it must have been brought to the attention of the other party prior to entering the contract. That is they must be aware of the clause’s existence. This can be done through ‘Actual’ or ‘Constructive’ Notice.
• Actual notice occurs when the party relying on the clause actually brings the clause to the other party’s attention or the other party simply reads the contract
• Constructive notice occurs when the party is not actually aware of the existence of the clause however the party relying on the clause has done all that is reasonably necessary to bring it to their attention.
This is usually easy to do in a signed contract but note that if the exclusion is particular harsh or unusual, extra attention should be drawn to it.
Sometimes an exclusion clause may appear on a document which does not appear to be a contract. For example you might find one on a ticket or a receipt that is not signed by you. Disclaimers can often be seen where information, products or services are supplied. For example disclaimers on websites which provide information will often state that no responsibility will be taken for losses caused by reliance on the information supplied (for an example of this see our disclaimer on our Legal Information page).
Again, the effectiveness of such an exclusion clause is assessed by considering whether there was actual or constructive knowledge prior to the contract forming but it can be harder to prove knowledge where unsigned disclaimers are used. In the case of an unsigned exclusion clause, a court considers whether a reasonable person would consider the receipt, voucher or ticket etc to be part of the contract and know that they should read it.
If a dispute arises over whether an exclusion clause was part of a contract or what the exclusion clause relates to, the court will look to the intention of the parties. If there is any doubt as to the intention of the parties to the agreement or the clause is ambiguous, unclear or grossly unfair, courts will usually apply for the following rules of interpretation to the clause:
• The exclusion clause will usually be interpreted against the party attempting to benefit by it.
• If the exclusion clause goes to the essence or root or the agreement, it is less likely to be effective.
• If the thing that goes wrong which a person is claiming for is outside the scope of the agreement as contemplated by the parties, then the exclusion clause may not operate.
• If the exclusion clause is inconsistent with the main purpose of the contract then the exclusion clause may be ineffective.
Therefore anyone attempting to use an exclusion clause to their benefit is well advised to be very clear when constructing these clauses and to seek the assistance of a lawyer if possible.
Are there certain things that can’t be excluded?
Section 52 of the Trade Practices Act
Generally the types of laws that can not be excluded by any type of disclaimer or exemption clause are laws aimed at protecting consumers. For example section 52 of the Trade Practices Act 1974 (Cth) prohibits misleading or deceptive conduct when occurring in trade or commerce and legislation relating to the sale of products that impose specific conditions into any sale of goods can not be excluded. The rationale behind this is that there are certain protections that benefit consumers that businesses should not be able to get out of.
Even though a disclaimer may attempt to limit or exclude liability against loss for reliance on information given, if it is found that the information is purposely misleading or that it amounts to fraud the disclaimer will not be effective. A simple example of this might be found in promoting a music festival. The promoters may state that a popular performer, eg Michael Jackson, will be performing and then have a disclaimer at the bottom of their poster stating; “To the best of our knowledge, the information provided is accurate and current. We do not make any representation or warranty as to the accuracy or completeness of the information”. If it is found that the organisers of the event never secured Michael Jackson as a performer and that the statement is fraudulent and the organisers will not be covered by their disclaimer.
It is worth noting that the Australian Competition and Consumer Commission has taken legal action in the past against businesses which tell consumers the wrong information about their rights with respect to returning faulty or damaged goods, ie. businesses which attempt to modify the types of laws that can not be excluded.
Risk Warnings
The law of negligence imposes an obligation on every person to to do or refrain from doing, any acts or omissions where it is reasonably foreseeable that a particular other person (or class of persons) is likely to suffer harm or loss as a result of that act or omission. Basically it means you owe a duty of care to avoid causing hurt to a person that you ought to know could suffer harm or loss if you do a particular thing or fail to do a particular thing.
Many Australian States have either passed or proposed legislation modifying the laws about liability for negligence. In NSW this law is called the Civil Liability Act 2002 (NSW). This legislation has a particular effect on people organising and participating in recreational activities as it allows you to limit potential liability for certain things going wrong by giving an oral or written risk warning (including by means of a sign or otherwise).
As stated above you’ll often find risk warnings when participating in recreational activities. For example you may go to a dance class and a sign will state that “no responsibility will be taken for any injuries incurred” or as you enter a live music performance a sign may state “Please note that you will be exposed to loud music at the Event. Prolonged exposure to loud music may cause damage to your hearing”.
These risk warnings don’t need to be specific to particular risks and can be a general warning of the risks involved.
The Act also provides that organisers will not be liable for harm suffered by participants from obvious risks of dangerous recreational activities.
Negligence
Can negligence be excluded by way of exclusion clauses, disclaimers and risk warnings?
Because negligence often results in personal injury or damage to property rather than mere economic loss, it is generally stated that the intention to exclude liability for negligence must be clearly expressed. A clause, warning or disclaimer will not be found to expressly exclude negligence unless it uses that word or a synonym.
Tips and key points.
• Be clear when constructing exclusion clauses. Use the ordinary meanings or words and consider their context.
• If you intend to exclude liability for negligence expressly state this.
• Make sure the other party knows. Do all that you can to bring an exclusion clause, disclaimer or warning to their attention.
• It is best to get people to read and sign an exclusion clause.
• Timing is important – the exclusion must be incorporated into the deal prior to it being made.
• If an exclusion clause is particularly unusual, dangerous or unreasonable, you should draw extra attention to it.
• If you are presented with a contract containing an exclusion clause read all the information carefully and be clear about what your rights are and remedies if the contract falls through.
Need more help?
If you have questions about exclusion clauses, disclaimers and risk warnings please contact Arts Law.
Telephone: (02) 9356 2566 or tollfree outside Sydney 1800 221 457