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An exclusion clause (sometimes called a disclaimer) is a statement, usually found in a contract, that is intended to limit someone’s liability in the event of loss or damage. For example, a business such as yours may include an exclusion clause in customer contracts to limit the amount of money your business will be liable for in the event that the contract is breached. Exclusion clauses must be carefully worded and used, as not all exclusion clauses will be effective in the eyes of the law.

For an exclusion clause to be valid, it must be part of the legally binding contract between the parties to the transaction. If your business is selling products to customers online, each transaction will form a contract between you (or your business) and the customer. The terms and conditions of that contract govern the legal relationship between you and the customer. If you want that contract to include an exclusion clause, the customer must be made aware of that clause (and all other terms of the contract) before the transaction is complete. You can make the customer aware of the clause by either pointing it out directly or otherwise taking reasonable steps to bring it to their attention. For online shopping, you would need to incorporate the exclusion clause into the full terms and conditions of the sale and ensure your customers click “I agree” to the terms before completing a purchase.

There are some restrictions on what an exclusion clause can say. Under the Australian Consumer Law, terms in a contract (including exclusion clauses) cannot be unfair, unconscionable, harsh or oppressive. There may also be limits to what types of loss an exclusion clause covers. Financial loss for breach of contract may be covered, but not necessarily personal injury as a result of negligence. Furthermore, some insurance companies may require your exclusion clause to cover certain types of loss. For this reason, it is recommended that you obtain legal advice about drafting an exclusion clause and how to incorporate it into your sale contracts.

On a related note, you may want to consider how your business is structured. If you are a sole trader with an ABN, you will be personally liable for any legal claim for damages made against you by someone who has suffered loss or harm as a result of your products. Incorporating your business as a company would help overcome this problem, as the company itself would be liable for damages in the event something goes wrong, rather than you personally. More information about structuring a small business can be found at www.statedevelopment.sa.gov.au/industry/smallbusiness.