How to effectively limit your liability

Before entering into a contract of any kind, you should consider the extent of any liabilities you are exposing yourself to. One way to make sure that you are not taking on more risk than you can handle is to include ‘limitation of liability clauses’ in your contract. These allow you to effectively limit, manage and otherwise allocate the various risks between you and the other parties to the contract.

Once you have effectively allocated and limited your liabilities, you can then consider what actions you must take, including getting appropriate insurance, to enable you to meet any assumed liabilities, should they arise.

How can you effectively limit your liability?

The things that you can consider doing to limit your liability under a contract include:

  • Capping the amount of your liability. This may be a fixed amount, for example, ‘$500,000’, or it could be to a given level of insurance;
  • Placing a floor or ‘minimum liability’ below which claims cannot be made against you. This stops someone from making a claim for a whole lot of small amounts. However, once the claims add up to the ‘floor amount’, then you are generally liable for the whole lot;
  • Capping the time within which a claim can be made. After this time has passed, you are off-the-hook;
  • Inserting a ‘non-reliance’ clause, stating that the parties do not rely on each other’s prior conduct or statements when entering into the agreement. In this way, you know that you are only liable for what is explicitly stated in the contract itself; and
  • Reducing your liability to the extent that the other person’s loss was caused by that person’s own act or omission.

You can also consider including a ‘cascading provision’, so that if one limitation is found to be ineffective, then the other limitations continue to apply.

Keep in mind that certain laws prevent parties from contracting out of certain liabilities. For example, a clause seeking to limit a party’s liability for misleading and deceptive conduct will be void under the Australian Consumer Law.

Once you have sorted out limiting your liability, you should should also consider taking steps to implement an asset protection strategy.

What should you do?

If you are considering entering into a contract, and you are concerned about the level of risk you are taking on – call us now on 1300 654 590 or email us. We can advise you on the effect of any limitation of liability clause that is already included in your agreement, or help to negotiate the inclusion of a limitation of liability that suits your appetite for risk.

Our Great Lawyer Guarantee

We want to be part of your team over the long term. We'll achieve this by sticking closely to the following principles:

  • We'll listen carefully to understand what you want to achieve. Then we'll thoroughly explain our advice and step you through the documents. You can be sure you'll know the full consequences.
  • Our lawyers work as a team, so someone will always be available to answer your questions, or point you in the right direction. You will also benefit from a range of perspectives and experience.
  • One of our key goals is to pass on as much knowledge as we can, so you can make your own informed decisions. We want to make you truly independent.
  • We only do what we're good at. You can be confident that we know what we're doing and won't pass on the cost of our learning.
  • For advice and documents, we provide a fixed or capped quote so you don’t take price risk. If you're in a dispute, we'll map out the process and costs so you know what to expect.
  • We're not in this game for our egos. We're in it for a front row seat to witness your success.

We measure our success on how efficiently we have facilitated your objectives, enhanced your relationships, and reduced the level of stress for all involved.

If we sound like people you can work with, call us now on 1300 654 590 and speak directly with a great lawyer.