Limitation of Liability Clauses Explained: Caps, Exclusions and the Consumer Guarantees (Australia, 2026)

This guide is based on the Australian Consumer Law (Competition and Consumer Act 2010, Schedule 2), the Competition and Consumer Regulations 2010 and the High Court judgments listed under Sources. Last checked 9 November 2026.

Limitation of liability clauses at a glance

What is a limitation of liability clause?

It is a term that limits how much one party has to pay the other if it breaches the contract or causes loss. Suppliers, software providers, consultants and contractors almost always include one. It can take several forms:

• A dollar cap. “Our total liability is limited to the fees you paid in the 12 months before the claim.”
• Excluded kinds of loss. “We are not liable for any indirect or consequential loss, loss of profit, revenue, data or goodwill.”
• Limited remedies. “Our only obligation is to resupply the services or refund the fee.”
• Time limits. “Any claim must be made within 3 months of the event.”
• Exclusions for events. No liability for outages, third-party systems, delays or anything “beyond our control”.

The question for you is simple: if this supplier gets it badly wrong, how much of your loss could you recover? A cap equal to one month’s fees can leave you carrying almost all of it.

Is a limitation of liability clause enforceable in Australia?

Usually the answer turns on the wording. The High Court has said that “the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole”, giving weight to its context, and “where appropriate, construing the clause contra proferentem in case of ambiguity” (Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510, as quoted in Andar Transport v Brambles [2004] HCA 28 at [122]). Contra proferentem means reading an unclear term against the party that relies on it.

On top of the contract itself, three parts of the Australian Consumer Law can matter:

1. The consumer guarantees cannot be excluded by contract when your business acquired goods or services as a consumer (s 64).
2. The unfair contract terms rules make an unfair term in a standard form consumer or small business contract void (s 23).
3. Misleading statements about your rights. A business must not make a false or misleading representation “concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy” (s 29(1)(m)). Telling a customer the guarantees do not apply when they do is the classic example.

Only a court can decide whether a particular clause is void or unenforceable. What you can do before signing is see where the clause sits against these rules and ask for changes.

Business purchases and the consumer guarantees

A business can be a “consumer” under the Australian Consumer Law. For goods or services, a person is taken to acquire them as a consumer if the amount paid or payable “did not exceed” the prescribed amount, which has been $100,000 since 1 July 2021 (s 3(1), (3); Competition and Consumer Regulations reg 77A), or if they are of a kind ordinarily acquired for personal, domestic or household use or consumption. For goods, that does not apply if they were bought to re-supply, or to be used up or transformed in production, manufacture or repairs (s 3(2)).

Where the guarantees apply, a term is “void to the extent that the term purports to exclude, restrict or modify” them, any right they give, or “any liability of a person for a failure to comply with a guarantee” (s 64(1)).

There is one narrow exception, in s 64A. For goods, or services, that are not of a kind ordinarily acquired for personal, domestic or household use, a term is not void merely because it limits liability to:

• for goods: replacing them or supplying equivalent goods, repairing them, or paying the cost of either (s 64A(1)); or
• for services: “the supplying of the services again” or paying the cost of having them supplied again (s 64A(2)).

Even then, the limit does not apply if you establish that it “is not fair or reasonable” for the supplier to rely on it (s 64A(3)). The court looks at all the circumstances, including the relative bargaining strength of each side, whether you received an inducement to agree, whether you could have bought elsewhere without the term, and whether you knew or ought to have known about it (s 64A(4)).

Note that s 64A only allows a limit to repair, replacement or resupply (or their cost). A flat “$500 maximum” is not one of the listed options.

One-sided caps and exclusions in standard form contracts

The unfair contract terms rules protect a small business that signs a standard form contract. A contract is a small business contract if at least one party employs fewer than 100 people when the contract is made, or had turnover under $10,000,000 in its last income year (ACL s 23(4)). If you allege a contract is standard form, it is presumed to be unless the other side proves otherwise (s 27(1)).

A term is unfair if it would cause a significant imbalance in the parties’ rights and obligations, is not reasonably necessary to protect the legitimate interests of the party it favours, and would cause detriment if relied on (s 24(1)). The term is presumed not to be reasonably necessary unless the party it favours proves otherwise (s 24(4)). The law’s own examples of terms that may be unfair include:

• a term that permits “one party (but not another party) to avoid or limit performance of the contract” (s 25(a));
• a term that limits one party’s vicarious liability for its agents (s 25(i));
• a term that limits one party’s right to sue another party (s 25(k));
• terms that limit the evidence one party can rely on, or put the evidential burden on one party (s 25(l), (m)).

A cap that protects only the supplier while your liability is unlimited deserves a close look, as does a very short time limit to claim. A court must also consider transparency: whether the term is in reasonably plain language, legible, presented clearly and readily available (s 24(2)-(3)). A cap hidden in a web page “as updated from time to time” scores poorly on that.

An unfair term is void, and the rest of the contract continues if it can operate without it (s 23(1)-(2)). For contracts made or renewed from 9 November 2023, proposing or relying on an unfair term is also a contravention with large penalties (s 23(2A), (2C); s 305). These are examples of terms that may be unfair, not automatic findings.

Consequential loss, lost profits and other exclusions

Exclusions of “indirect or consequential loss” are very common. Whether lost profits, wasted staff time or the cost of fixing your data fall inside one depends on how the clause is written and read in context. The practical protection is to make the clause say what it means:

• define “consequential loss” in the contract, and keep out of it the losses you care most about;
• list the losses that remain recoverable, such as the cost of replacement services, restoring data, or refunds of fees paid for services not delivered;
• make sure the exclusion applies to both sides, not only the supplier.

What to ask for before you sign

Reasonable requests include:

1. A mutual cap. If the supplier’s liability is capped, yours should be too.
2. A realistic cap. A multiple of the annual fees, or a figure linked to the real risk.
3. Carve-outs from the cap. Common ones are breach of confidentiality or privacy, loss of your data, infringement of intellectual property, personal injury, fraud and deliberate breach.
4. A link to insurance. Ask whether the cap is at least the supplier’s insured amount.
5. Consistency with the indemnity clause. Check whether indemnities you give sit outside your cap while the supplier’s do not. See the indemnity clause guide.

If the supplier will not move on a standard form contract, the unfair contract terms rules still apply to the terms you could not negotiate.

What our review checks

Upload the supplier, software (SaaS), equipment or service terms and get a plain-English report written for the small business customer, usually about 5 minutes after you pay. On liability it:

• quotes each cap, exclusion and time limit, and says how much of your loss it could leave with you
• compares the supplier’s limits with your own liability under the same contract
• flags exclusions of the consumer guarantees where your purchase may fall within them
• checks one-sided limits against the unfair contract terms examples in s 25
• gives you the specific changes to ask for, such as a mutual cap and carve-outs

The report explains what the terms say and what the law provides. It does not say a term “is void” or “is unenforceable”: only a court decides that. It is not legal advice. You decide what to sign.

Get my business terms reviewed – $49

Questions people ask

What is a limitation of liability clause?

A term that caps or excludes what one party must pay if it breaches the contract or causes loss. It can set a dollar cap, exclude kinds of loss such as lost profits, limit you to a refund or resupply, or set a short time limit for claims.

Are limitation of liability clauses enforceable in Australia?

That depends on the wording and the type of contract. Courts read the clause by its natural and ordinary meaning in the context of the whole contract. The consumer guarantees cannot be excluded, and a one-sided clause in a standard form small business contract may be void as an unfair term.

Can a supplier exclude the consumer guarantees in a business contract?

Not where your business acquired the goods or services as a consumer, for example where the price did not exceed $100,000. A term is void to the extent it excludes or restricts the guarantees (ACL s 64). For non-household goods or services, liability can be limited to repair, replacement or resupply, unless that is not fair or reasonable (s 64A).

Is a liability cap of the fees paid in the last 12 months reasonable?

It is common, but whether it is reasonable for you depends on your real exposure. If a failure could cost you far more than a year’s fees, ask for a higher cap, a mutual cap and carve-outs for data loss, confidentiality, IP infringement and fraud.

What does consequential loss mean in a contract?

It depends on how the contract defines it and how it is read in context. Do not assume it only covers unusual losses. Ask for the contract to define it and to state which losses, such as replacement costs or refunds, remain recoverable.

Can a one-sided liability cap be an unfair contract term?

It can, in a standard form consumer or small business contract. A term letting one party but not the other limit its performance, or limiting one party’s right to sue, is one of the law’s examples of a term that may be unfair (ACL s 25(a), (k)). Only a court decides whether a term is unfair.

Does my business count as a small business for unfair contract terms?

Yes if your business, or the other party, employs fewer than 100 people or had turnover under $10 million in its last income year (ACL s 23(4)). Only one party needs to meet the test, and there is no limit on the contract’s value under the ACL.

Can a supplier say it is not liable for anything?

It can write that, but the clause may not work as written. Consumer guarantees cannot be excluded where they apply, a one-sided exclusion in a standard form small business contract may be unfair, and a false statement about your rights can breach the ACL (s 29(1)(m)).

What is the difference between a limitation of liability and an indemnity?

A limitation clause reduces what one party must pay. An indemnity is a promise to cover the other party’s loss, often including third-party claims and legal costs. Check whether indemnities you give sit outside your cap.

Is the business terms review legal advice?

No. It is a plain-English report that explains what the terms say, which ones may be unfair under the law and what to ask the supplier to change. Claim Done is not a law firm.

Related guides

• Indemnity clauses explained: what you are promising to pay for
• Unfair contract terms for small business: the rules since 9 November 2023
• Supplier and SaaS terms: unfair contract terms for small business
• SaaS agreement review: subscription terms, SLAs and data

Claim Done is not a law firm and does not give legal advice; this page is general information about Australian law as at 9 November 2026. Whether a clause is void, unfair or enforceable is for a court or tribunal to decide.

Sources (checked 9 November 2026)

• Competition and Consumer Act 2010 (Cth), Schedule 2 (Australian Consumer Law), Compilation No. 167 (ss 3, 23-27, 29, 64, 64A, 224, 305, 310)
• Treasury Laws Amendment (Acquisition as Consumer – Financial Thresholds) Regulations 2020 (Competition and Consumer Regulations 2010 reg 77A: $100,000)
• Andar Transport Pty Ltd v Brambles Limited [2004] HCA 28 (at [122], quoting Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510)
• ACCC: contracts