Exclusion clauses 

An exclusion clause seeks to exclude or limit a liability that would otherwise arise. They are not disfavoured as such — commercial parties routinely allocate risk this way, and insurance is priced on the assumption that they can. But they attract close attention, because they operate to deprive a party of a remedy.

Three questions, in order.

1. Is the clause incorporated?

The ordinary rules apply: signature, reasonable notice given before or at the time of contracting, or a consistent course of dealing. Notice is where exclusion clauses most often fail — a clause on a ticket, a sign in a car park or terms delivered with the goods may come too late or be insufficiently brought to attention. The more unusual or onerous the clause, the more that is required to bring it to notice.

2. Does it cover what happened, on its proper construction?

Australian courts construe exclusion clauses according to their natural and ordinary meaning, read in the context of the contract as a whole — the same approach as any other term. The older doctrine that such clauses attract a specially hostile construction has been rejected: there is no rule that a clause cannot, if clear enough, cover a fundamental breach or a party's own negligence. Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500¹ is the leading High Court authority for this ordinary-construction approach.

That said, clarity is required in proportion to what is being excluded. A clause said to exclude liability for a party's own negligence must do so in language that makes that meaning plain, and ambiguity will be resolved against the party relying on the clause (contra proferentem), which matters most in standard-form contracts.

Related devices are construed the same way: limitation clauses capping liability, time bars requiring claims within a period, and entire agreement clauses excluding prior representations.

3. Is it defeated by statute?

This is frequently decisive, and should be checked early:

• Consumer guarantees under Australian consumer law cannot be excluded, restricted or modified, and a term purporting to do so is void. Liability for failure to comply with some guarantees may be limited in defined ways for non-personal goods and services.
• Unfair contract terms provisions can render a term void in standard-form consumer and small business contracts where it causes significant imbalance, is not reasonably necessary to protect legitimate interests, and would cause detriment.
• Statutory prohibitions on misleading or deceptive conduct cannot be contracted out of, and an entire agreement clause does not defeat them.

Applying this in a problem question

1. Incorporation — was the clause part of the contract, and was notice timely?
2. Construction — on its ordinary meaning, does it cover this loss and this conduct? Say so expressly if negligence is involved.
3. Statute — consumer guarantees, unfair contract terms, and misleading conduct.
4. Only then consider the practical effect on the remedy claimed.

Where the authority sits

Common law for incorporation and construction, and statute for the controls that most often decide the outcome. The statutory provisions are Commonwealth law of general application — cite the Act and section.