Somewhere near the back of almost every set of terms and conditions you will sign, or send to your own customers, sits the limitation of liability clause. It is usually the densest paragraph in the document and the one most people skip. If your business sells goods or services in Australia, this is the clause that decides how much you can be made to pay when something goes wrong, and it is also the clause most likely to be drafted wrongly.
What a limitation of liability clause does
A limitation of liability clause does three operational things. It caps the maximum amount the business can be liable for, usually at the contract price or a set figure. It excludes categories of loss the business does not want to carry, such as lost profits and indirect or consequential damage. And it displaces implied terms and warranties that would otherwise apply, to the extent the law allows. What it cannot do is override the statutory protections that the Competition and Consumer Act 2010 (Cth) gives consumers. Schedule 2 of that Act is the Australian Consumer Law (the ACL), and it sets hard limits on how far a contract can push risk onto a customer. Understanding those limits is the difference between a clause a court will enforce and one it will strike down.
The provisions that make up the clause
A limitation clause that works is really six or seven related provisions working together. Here is what each one does, the drafting choice that matters most, and the traps that cause downstream problems.
The "as is" disclaimer
Most limitation clauses open with a disclaimer about the information the business publishes. It says the website content, brochures and other materials are provided in good faith on an "as is" and "as available" basis, that the business does not warrant the information is accurate, complete or current, and that readers rely on it at their own risk. That is a sensible clause to have for general information.
It is not a licence to publish wrong pricing. Statements about price, availability and the features of goods and services are not protected by a disclaimer, because s 18 of the ACL prohibits misleading or deceptive conduct in trade or commerce, and that prohibition applies to conduct, not to what the contract says. A disclaimer cannot be used to contract out of it. Nor can a disclaimer erase what your own website said about a product: under s 54 of the ACL, representations made by the supplier are one of the matters a court weighs in deciding whether goods are of acceptable quality.
The consumer guarantees acknowledgment
Every supply of goods or services to a consumer in Australia carries statutory guarantees under the ACL: that goods are of acceptable quality, fit for the purpose the customer disclosed, match their description and any sample, and that title is clear; and that services are supplied with due care and skill, are fit for a disclosed purpose, and are supplied within a reasonable time. The clause in your terms and conditions should acknowledge these guarantees and set out the remedies that follow: a refund, replacement or repair for a major failure, and a repair or replacement for a minor one. Three drafting points matter:
- What s 64 of the ACL says: a term of a contract is void to the extent it purports to exclude, restrict or modify the guarantees, the rights they confer, or the supplier's liability for failing to comply with them.
- What that means in practice: you cannot write "we accept no liability whatsoever" and expect it to hold. The term is void, the guarantee survives, and the customer keeps the remedy.
- Delivery traps: if you arrange delivery through a third-party courier, the customer's contract is with you, not the courier. If the goods do not arrive or arrive damaged, you are the party the customer can pursue, and you then recover from the courier separately. Your terms cannot point the customer at the courier instead of you.
The repair or replacement option
There is a drafting minimum available to businesses that supply other businesses. Under s 64A of the ACL, for goods or services that are not of a kind ordinarily acquired for personal, domestic or household use, you can limit your liability for a failure to comply with most of the consumer guarantees to the cost of repair or replacement, or, for services, to re-supplying them. This is the provision that lets a B2B supplier cap its exposure at the value of fixing the problem rather than the full value of the customer's loss.
Two qualifications matter. The section does not allow you to limit the title-related guarantees in ss 51 to 53 of the ACL. And the limitation is only protected if it is fair and reasonable in the circumstances, which a court assesses by reference to factors such as the parties' relative bargaining power, whether the customer could have acquired the goods elsewhere without the term, and whether the customer knew of the term.
The exclusion of implied terms
State legislation, such as the sale of goods Acts, implies conditions and warranties into contracts for goods and services: that goods match their description, are of merchantable quality, and similar obligations. For business-to-business contracts, a limitation clause can exclude these implied terms to the extent the law permits. The drafting choice is to say so expressly and in terms broad enough to cover every implied condition or warranty, while carving out the consumer guarantees, which cannot be excluded. A general phrase such as "all implied terms are excluded except as set out in this agreement" is the usual approach, but it must be an actual term of the contract, not something buried in a brochure or on a website page the customer never sees.
The exclusion of indirect and consequential loss
Most limitation clauses also exclude liability for indirect or consequential loss, lost profits, loss of data, and loss of opportunity. The drafting choice that matters most here is definition. Australian courts have read the phrase "consequential loss" in different ways, and if you want to exclude lost profits you should say so rather than leave it to implication.
The trap is construction. Exclusion clauses are given their natural and ordinary meaning, but any genuine ambiguity is resolved against the party relying on the clause: see Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500. A clause drafted so broadly that it appears to swallow the whole point of the contract can also be read down by a court.
The cap on total liability
The cap is the number at the end of the clause: the maximum the business will ever pay. Common choices are the price of the goods or services in question, or, for subscriptions and ongoing arrangements, the fees paid in the previous 12 months. The cap should be drafted to cover all claims arising under or in connection with the contract, whether they arise in contract, tort (including negligence), statute or equity, and it should extend to the business's directors, officers and employees as well as the business itself. Three points about the cap deserve attention:
- What the cap must not swallow: the consumer guarantees. A cap that purports to limit liability for a failed guarantee is void under s 64 of the ACL, so the cap clause should state expressly that it does not apply to the consumer guarantees.
- The number should match your risk profile: a cap set well below your insurance cover leaves you exposed, while a cap set at a figure that makes the contract commercially pointless for the customer invites challenge and can be an unfair term in a standard form contract.
- Indemnities: decide whether the indemnities you give, for example for intellectual property infringement or a data breach, sit inside the cap or outside it, and say so in the clause.
The extra warranty wording
If you offer a warranty against defects beyond the consumer guarantees, such as an extended warranty, there are mandatory requirements. Section 102 of the ACL and reg 90 of the Competition and Consumer Regulations 2010 (Cth) require the warranty document to be transparent, to state concisely what you will do and what the customer must do to claim, to include prescribed text about the guarantees that cannot be excluded, and to show your name, business address, phone number and email. Giving a customer a warranty document that does not comply can attract a penalty, so the wording in your terms and conditions should match what the regulations prescribe.
The unfair contract terms check
Finally, the whole limitation clause has to survive the unfair contract terms regime. Since 9 November 2023, it is not just that an unfair term in a standard form consumer or small business contract is void: proposing one, or relying on one, is itself a contravention that can attract a penalty under s 224 of the CCA. A term is unfair under s 24 of the ACL if it causes a significant imbalance in the parties' rights and obligations, is not reasonably necessary to protect the legitimate interests of the party advantaged by it, and would cause detriment if it were applied or relied on.
The regime covers consumer contracts and small business contracts, which s 23 of the ACL defines as contracts where at least one party employs fewer than 100 people or has annual turnover under $10 million. The examples of potentially unfair terms in s 25 include a term that limits one party's right to sue and a term that limits one party's vicarious liability for its agents, both of which a badly drafted limitation clause can easily resemble.
Optional clauses worth considering
These clauses are not essential, but each earns its place in particular businesses:
- Survival clause: makes the limitation, indemnity and confidentiality provisions continue after the contract ends, which matters for subscriptions where claims can surface after termination.
- Time limit for claims: requires the customer to bring any claim within a set period, such as 12 months of the event giving rise to it; useful for long-tail products, but an unreasonably short period can be an unfair term.
- Indemnity carve-outs: where you give indemnities for intellectual property infringement or misuse of data, state deliberately whether they sit inside or outside the cap.
- Service credits: for software and other services with availability commitments, an agreed credit against fees for downtime is often more practical than relying on the general cap.
- Third-party content disclaimer: if your site hosts user-generated content, reviews or links, disclaim responsibility for third-party material separately from your own goods and services.
How an Artificer Legal lawyer would review your limitation clause
An Artificer Legal lawyer would start with the ACL, not the clause. We would check that the consumer guarantees are acknowledged and carved out, that the repair or replacement option in s 64A of the ACL is being used where the supply is to another business, and that any extended warranty carries the wording the regulations prescribe. We would then test the commercial drafting: whether the cap covers every cause of action and extends to directors and employees, whether consequential loss is defined so the clause does not accidentally exclude direct loss, and whether indemnities sit where you want them. We would also assess the unfair contract terms risk of a standard form contract and check that the cap aligns with your insurance cover, because a cap that exceeds your cover leaves you exposed and a cap that is far too low invites challenge. In negotiation, the order matters: agree first on what cannot be excluded, then on the quantum of the cap, then on the list of exclusions.
Why the carve-outs decide whether your clause survives
The drafting choice that most often decides who wins a dispute is how the clause handles the consumer guarantees. A blanket "no liability" clause that ignores the ACL will be struck down in part under s 64, and a court will then read the rest of the document against the party that drafted it. A clause that expressly acknowledges the guarantees, uses s 64A where it is available, and then caps and excludes everything else, is far more likely to be enforced as written. Draft the carve-outs first, and the rest of the clause does its job.
For most Australian businesses the practical summary is this. A limitation of liability clause is a legitimate and important risk management tool, but its scope is fixed by the ACL. You can cap your liability at the contract value or a period of fees, you can exclude indirect and consequential loss, and, for business customers, you can limit remedies to repair or replacement. You cannot exclude the consumer guarantees, you cannot disclaim liability for misleading conduct, and your exclusions and caps must be clearly drafted and fair, because an unfair term in a standard form contract is now void and can attract a penalty. Having a lawyer review the clause against the ACL and your insurance position in a single pass is often cheaper than the disputes a bad clause creates.