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Thursday, 29 July 2010 |
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Contractor's legal guide - limitation of liability clauses
Tuesday, 10 June 2003
At common law, parties are free to structure their contracts to include exclusion clauses, however, in most circumstances under the Trade Practices Act and the Goods Act any clause which excludes or limits contractual liability that cannot be excluded or limited is void.
Exclusion clauses are interpreted strictly against the party seeking to rely upon them. For instance what does direct and indirect loss mean? What does consequential damages mean? The Courts have different interpretations on each of the meanings of these terms.
Many limitation of liability clauses drawn internationally, especially clauses drafted in the USA, will not hold under pressure in Australia. Further, even clauses which are drafted by professionals frequently fail.
A sample clause is as follows:
(a) To the extent permitted by law and except as expressly provided to the contrary in this Agreement, all warranties whether express, implied, statutory or otherwise, relating in any way to the subject matter of this Agreement or to this Agreement generally, are excluded.
(b) Where legislation implies in this Agreement any condition or warranty and that legislation avoids or prohibits provisions in a contract excluding or modifying the application of or the exercise of or liability under such term, such term shall be deemed to be included in this Agreement. However, the liability of Supplier for any breach of such term shall be limited, at the option of Supplier, to any one or more of the following:
(i) if the breach related to goods: the replacement of the goods or the supply of equivalent goods; the repair of such goods; the payment of the cost of replacing the goods or of acquiring equivalent goods; or the payment of the cost of having the goods repaired; and
(ii) if the breach relates to services the supplying of the services again; or the payment of the cost of having the services supplied again.
(c) To the extent permitted by law and except as expressly provided to the contrary in this Agreement, Supplier shall not be under any liability (contractual, tortious or otherwise) to Customer in respect of any loss or damage (including, without limitation, consequential loss or damage) howsoever caused, which may be suffered or incurred or which may arise directly or indirectly in respect to the supply of goods or services pursuant to this Agreement or the act, failure or omission of Supplier.
If your limitation of liability clause breaches the Trade Practices Act it may be struck out in its entirety leaving your liability uncapped and completely exposed.
Further there is some confusion between different jurisdictions as to whether or not software a “good” or a “service” and this needs to be expressly considered as it as above.
This information is provided courtesy of White SW Computer Law
White SW Computer Law (wcl@computerlaw.com.au)
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