Consumer Law: Understanding Exclusion Clause Applications

Exclusion clauses are a type of clause that appears in a contract when one party tries to limit or exclude itself from liability. In the context of consumer law, exclusion clauses are important as they allow consumers to be protected from unfair terms. The effectiveness of exclusion clauses depends on whether they are part of a legally binding contract between the parties. For instance, in Australia, the Australian Consumer Law (ACL) limits the effectiveness of exclusion clauses by addressing unfair, unconscionable, harsh, or oppressive contractual terms. Similarly, in the UK, the Unfair Contract Terms Act 1977 and the Consumer Rights Act 2015 prevent sellers from excluding liability in certain circumstances.

Consumer protection legislation

Consumer protection laws, such as the Australian Consumer Law (ACL) and the Consumer Rights Act 2015 in the UK, are designed to prevent businesses from unfairly excluding or limiting their liability. These laws ensure that consumers are not taken advantage of and have recourse in the event of issues with the goods or services they purchase.

In Australia, the ACL prohibits misleading or deceptive conduct and provides protections for consumers who agree to standard form contracts, such as those formed by clicking "I agree" on a website. It also includes consumer guarantees that cannot be limited, restricted, or excluded by businesses. This means that even with an exclusion clause, consumers still have certain rights protected by law.

Similarly, the Consumer Rights Act 2015 in the UK prevents businesses from excluding liability if they breach their obligations under the Act. This Act replaced the Unfair Contract Terms Act 1977, which made certain types of exemption clauses automatically void and ineffective. These included clauses excluding liability for death or personal injury caused by negligence and selling goods that were not properly owned or of suitable quality.

To ensure compliance with consumer protection legislation, businesses should be transparent and provide clear and concise terms and conditions. They must ensure that exclusion clauses are properly incorporated into the contract and not hidden in fine print or ambiguous language. Failure to do so may result in the clause being deemed unenforceable by a court.

Additionally, businesses should be mindful of the harshness of their exclusion clauses. The more severe the exclusion, the more effort is required to bring it to the buyer's attention. This includes making the terms available on multiple occasions before the contract is formed and ensuring that the buyer has a copy of the contractual terms, with exclusion clauses prominently displayed.

The Unfair Contract Terms Act

The UCTA renders terms that exclude or limit liability as either ineffective or subject to a "reasonableness" test, depending on the nature of the obligation and whether the party applying the exclusion is acting against a consumer.

Negligence: Terms that exclude or restrict liability for negligence resulting in death or personal injury are void.

Manufacturers' guarantee: Loss arising from defective goods or the negligence of a distributor cannot be excluded where the goods are intended for private use or consumption.

Sale of goods: Implied terms regarding title, description, quality, or sample cannot be excluded against a consumer.

Negligence: Exclusion of liability for negligence (except for death or personal injury) must satisfy the requirement of reasonableness.

Contractual liability: Exclusion of liability arising from a breach of contract or substantially different performance must satisfy the requirement of reasonableness. This applies when one party deals on standard written terms or when the other party is a consumer.

Indemnity clauses: A consumer cannot indemnify a third party on behalf of the other party unless it satisfies the requirement of reasonableness.

Sale of goods: Implied terms regarding description, quality, and sample may be reasonably excluded when neither party is a consumer.

Misrepresentation: Exclusion of liability for misrepresentation must satisfy the requirement of reasonableness.

Definitions of "consumer" and "business"

The UCTA defines a "business" as any entity acting in the course of business, including government departments. A "consumer" is defined as a party that is not acting in the course of business and is dealing with a business.

Reasonableness

The UCTA provides some guidance on reasonableness, but most development has been through case law. The "reasonableness" test considers the circumstances at the time of the contract, with the burden of proof on the party excluding liability. Factors such as equality of bargaining powers, practicality of obtaining legal advice, and the difficulty of the task being undertaken are considered.

The Consumer Rights Act

The Act prevents traders from excluding liability if they breach their obligations under the Act. For instance, a trader cannot exclude or restrict liability for death or personal injury resulting from negligence. If a term in a consumer contract could have different meanings, the meaning that is most favourable to the consumer prevails.

The Act also requires that a trader must ensure that a written term of a consumer contract, or a consumer notice in writing, is transparent. This means it must be expressed in plain and intelligible language and be legible.

The Act also sets out the general rules about the fairness of contract terms and notices. An unfair term of a consumer contract is not binding on the consumer. A term is unfair if it causes a significant imbalance in the parties' rights and obligations under the contract to the detriment of the consumer. Whether a term is fair is determined by taking into account the nature of the subject matter of the contract and by reference to all the circumstances existing when the term was agreed and to all the other terms of the contract.

The Act also covers exclusion clauses, which are terms in a sales contract that protect the seller from liability if specified things go wrong. For example, a seller could include a term stating they are not legally responsible if they are late delivering the goods. The harsher the exclusion clause, the more the seller needs to do to bring it to the buyer's attention.

The Act also covers limitation clauses, which limit the seller's liability. For example, by stating they won't be liable for an amount greater than the price if the goods are faulty.

The Australian Consumer Law

Exclusion clauses, also known as exemption clauses or limitation of liability clauses, are a common feature of commercial contracts in Australia. They are used to limit or exclude the liability of one or more parties in the event of a breach or other legal claim.

However, there are limited exceptions to this rule. An exclusion clause may be enforceable if it meets specific criteria. For instance, it must be reasonable and necessary, and the business must clearly and prominently bring it to the consumer's attention. The reasonableness of such clauses depends on factors like the bargaining power of the parties, the nature and value of the goods or services, and the extent to which the consumer could negotiate the contract terms.

Additionally, exclusion clauses must comply with the Fair Trading Act 1987 (NSW), which requires disclosure if they are likely to substantially prejudice the other party. The Act prohibits businesses from making false claims or operating in a misleading or deceptive manner.

It's important to note that exclusion clauses cannot override a consumer's rights under the ACL. They are also subject to interpretation by courts, which may apply the contra proferentum rule if the clause is ambiguous or if the weaker party requires protection. In such cases, the clause is interpreted against the party seeking to rely on it.

Overall, exclusion clauses can be a valuable tool for managing risk and limiting liability in contractual relationships in Australia. However, they must be carefully drafted and incorporated into the contract to ensure compliance with the ACL and other relevant legislation.

The Unfair Terms in Consumer Contracts Regulations

The UTCCR sought to render ineffective terms that benefit sellers or suppliers against consumers' interests. It also had provisions specifically covering standard form contracts. The regulations define "unfair" as:

> If a contractual term has not been individually negotiated and the term causes a significant imbalance in the parties' rights and obligations, then the term is contrary to the requirement of good faith.

"Has not been individually negotiated" refers to terms that the consumer has not had the opportunity to influence. "Causes significant imbalance" means the term benefits the seller or supplier to an excessive degree and is detrimental to the consumer. "Contrary to good faith" means that the term goes against the business objective of the seller or supplier.

Schedule 2 of the UTCCR provides an indicative and non-exhaustive list of terms that would be considered unfair. An unfair term is not binding on the consumer, and the contra proferentem rule applies, meaning that any ambiguity in a clause is interpreted against the party that insisted on including it.

Frequently asked questions