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 someone's liability in the event of loss or damage. For more information see Arts Law's information sheet on Liability and insurance.
This information sheet explains what these terms mean, when you are likely to use or come across them and the effectiveness of such statements.
Exclusion clauses, exemption clauses, disclaimers or warnings are not always effective in excluding liability of the person or entity relying on it.
Exclusion clauses and disclaimers
Purpose of 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, if a party to a contract wishes to limit its liability in the event that it breaches the contract, it will usually include an exclusion clause limiting the amount of damages that the other party can claim to a specified total. Sometimes a party may include a clause 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 exclusion clauses effective?
Generally, an exclusion clause in a contract must have been brought to the attention of the other party prior to entering the contract in order for to be effective. The party accepting the exclusion clause must be aware of its existence. This can be done through "actual" or "constructive" notice.
- Actual noticeoccurs 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 noticeoccurs when the party is not actually aware of the existence of the clause but the party relying on the clause has done all that is reasonably necessary to bring it to the other party's attention.
Notice is usually easy to give in a signed contract. If the exclusion is particular harsh or unusual, the party relying on it should draw extra attention to it.
Tickets, receipts
Sometimes an exclusion clause or disclaimer may appear on a document which does not appear to be a contract. For example, you might find an exclusion clause on a ticket or a receipt that you have not signed. 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. The effectiveness of such an exclusion clause is assessed by considering whether actual or constructive notice occurred prior to the contract forming. It is harder to prove notice was given in the case of unsigned disclaimers. In such cases, 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.
Interpretation of exclusion clauses or disclaimers
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 or if the clause is ambiguous, unclear or grossly unfair, courts will usually apply the following rules of interpretation to the clause:
- The exclusion clause will usually be interpreted against the party seeking to rely on 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, the exclusion clause may be ineffective.
Therefore any party attempting to use an exclusion clause to its benefit should be very clear when drafting the clauses and seek the assistance of a lawyer if possible.
Limitations on exclusion clauses and disclaimers
Consumer protection legislation
Generally, laws aimed at protecting consumers cannot be excluded by any type of exemption clause or disclaimer. For example, section 18 of the Australian Consumer Law(Schedule 2 of the Competition and Consumer Act 2010 (Cth)) prohibits misleading or deceptive conduct when occurring in trade or commerce; legislation relating to the sale of goods and services state that specific conditions cannot be excluded from such sales. The rationale behind that legislation is that businesses should not be able to escape certain protections that benefit consumers.
Even though a disclaimer may attempt to limit or exclude liability against loss for reliance on information given, the disclaimer will not be effective if the information is found to be purposely misleading or if it amounts to fraud. 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 the organisers of the event are found never to have secured Michael Jackson as a performer, the statement is fraudulent and the organisers will not be covered by their disclaimer.
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, i.e. businesses which attempt to modify laws that cannot be excluded.
Risk warnings
The law of negligence imposes an obligation on every person to do, or refrain from doing, any act or omission where it is reasonably foreseeable that a particular other person (or class of persons) is likely to suffer damage or loss as a result of that act or omission. Basically it means you owe a duty of care to avoid causing harm to a person that you ought to know could suffer damage 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) (Act). This legislation has a particular effect on people organising and participating in recreational activities as it allows them 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). For example you may go to a dance class and a sign will state that “no responsibility will be taken for any injuries incurred”. Similarly 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” as you enter a live music performance.
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, the intention to exclude liability for negligence must be clearly expressed. An exclusion 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 drafting exclusion clauses. Use the ordinary meanings or words and consider their context.
- If you intend to exclude liability for negligence, you must expressly state this.
- Make sure the other party knows about the exclusion clause, disclaimer or warning. Do all that you can to bring an exclusion clause, disclaimer or warning to its attention.
- It is best to get people to read and sign an exclusion clause.
- Timing is important: the exclusion must be incorporated into the agreement 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 enquire what your rights are and remedies if the contract falls through.
