Can a supplier limit its liability under Australian law?

The part that cannot be contracted away

The Australian Consumer Law provides statutory guarantees on goods and services, including that services will be rendered with due care and skill and that goods will be of acceptable quality.

Section 64 makes any term that purports to exclude, restrict or modify those guarantees void. It does not matter that both parties are businesses, that both had lawyers, or that the clause is clearly drafted. To the extent it tries to remove a consumer guarantee, it does not work.

What a cap can still do

Liability caps remain useful and largely effective. They can cap liability for ordinary contractual breach, and they can allocate risk between the parties for matters outside the statutory guarantees.

Section 64A also allows a supplier to limit its liability for failing to meet a consumer guarantee, but only where the goods or services are not of a kind ordinarily acquired for personal, domestic or household use. Where it applies, liability can be limited to resupplying the service or paying the cost of having it supplied again, or to replacing or repairing goods.

So the accurate picture is not that caps are unenforceable. It is that a cap sits on top of a floor it cannot remove, and the floor is wider than most people assume.

What to check in the clause

Is it mutual?

A cap that protects the supplier and leaves your liability uncapped is one-sided, and in a standard form contract with a small business that asymmetry is exactly what the unfair contract terms test looks at.

What sits outside the cap?

Data breach, breach of confidentiality, and wilful misconduct are the carve-outs worth asking for. A cap that swallows a data breach is doing a lot of work for the supplier.

Does it purport to exclude consumer guarantees?

Wording that excludes all implied terms and guarantees to the maximum extent permitted by law is common and generally fine. Wording that flatly excludes the consumer guarantees is void to that extent.

How is the cap measured?

Fees paid in the preceding 12 months is the common market position. Fees paid to date on a young contract is a much smaller number than it first appears.

Common questions

Can a business contract out of consumer guarantees in Australia?

No. Section 64 of the Australian Consumer Law makes void any term that purports to exclude, restrict or modify a consumer guarantee. A supplier may in some cases limit its liability for a failure under section 64A, but only where the goods or services are not of a kind ordinarily acquired for personal, domestic or household use.

Do consumer guarantees apply to business to business contracts?

Often, yes. Since 1 July 2021 the consumer threshold covers goods or services acquired for up to $100,000, regardless of the buyer's size or whether the purchase was for business use. Many ordinary B2B software and services contracts fall under that figure.

Is a 12 month fee cap enforceable in Australia?

Generally yes for ordinary contractual breach, and it is the common market position. It cannot remove the statutory consumer guarantees, and in a standard form contract with a small business a cap that is heavily one-sided may also be examined under the unfair contract terms regime.