Exclusion clauses – are they valid?

Whether you are buying a car or just changing Internet providers, you are probably being pushed into agreeing to clauses limiting or excluding the liability of the provider. Can the standard terms and conditions of a provider validly prevent the customer from making a claim, if the products or services are defective?

Can you be bound by clauses you have not read?

The answer is yes. Over many years there have been cases where terms and conditions are shown in standard documents, such as dry-cleaning dockets, car park tickets or even hanging on a wall. If you know that there are standard terms and conditions and choose to go ahead with the transaction, you are taken to have agreed to them, whether you have read them or not.

“Click-wrap” conditions

When software such as Windows used to be sold on CDs, standard terms and conditions could be read through the cling wrap, with a warning that, if you open the cling wrap, you were agreeing to those terms. They became known as “cling wrap” conditions.

Times moved on, and such products other are now sold on the Internet. The customer needs to click on the website of the provider, showing they have agreed to the terms and conditions. That is how “cling wrap” evolved into “click wrap” conditions.

The handful of clauses on the back of a dry-cleaning docket or car park ticket have now involved into hundreds of words of complex legalese. However, at this stage, the courts have not moved away from the old rules. The cases in Australia and America on click wrap conditions show that, so long as the terms and conditions were brought to the attention of the user, they are binding. It is sufficient to show that the customer knew of the terms whether or not they read them. However, if the supplier inserted some unusual conditions without drawing them to the attention of the customer, they would probably not be binding.

Liability that cannot be excluded

To combat this issue, certain laws apply, regardless of any terms and conditions. The most important of these is the Australian Consumer Law (“ACL”), including the Consumer Guarantees. The ACL provides that these guarantees cannot be excluded by contract.

Accordingly, no matter what the terms and conditions of the supplier may be, they are bound by the Consumer Guarantees under the ACL. These include guarantees that, if a business provides goods and services, knowing the purpose for which they were required, there is a guarantee that they will be suitable for that purpose. That was the fundamental guarantee which was at the heart of our victory in the Scenic Tours class action. These guarantees only apply to “consumers”, but that can include companies, if the products supplied are worth less than $100,000.

Should a business have exclusion clauses?

Despite the ACL provisions referred to above, there are good reasons why a business should have standard terms and conditions, limiting their liability.

First, the ACL conditions only apply to consumers.

Second, the ACL provides that, while liability to a consumer cannot be excluded, it can be limited. For example, in most cases, there can be a valid term limiting liability for defective services to supplying the services again, or paying the cost of having the services supplied again.

Conclusion

Terms and conditions limiting a supplier’s liability are valid, provided they were drawn to the customer’s attention. The guarantees under the Australian Consumer Law apply to consumers regardless of terms and conditions, but can be limited by those terms and conditions.

At Somerville Legal, we have extensive experience in advising on terms and conditions and drafting them in consultation with our clients.

For more information  contact Tim Somerville  or Andrew Somerville on (02) 9923 2321.