Exclusion Clauses - Do They Say What You Think?

Key Point

• Exclusion clause may now operate to exclude losses that the parties did not intend to exclude, so they now need to be meticulously drafted and negotiated.

The Victorian Court of Appeal judgment in Environmental Systems v Peerless Holdings changes the way in which the term "consequential loss" is likely to be interpreted in Australian contract law. Although the decision is not binding on courts in other jurisdictions, it will no doubt be taken into consideration by all State courts in future decisions. As a result, current contracts containing an exclusion for consequential loss may operate to exclude losses that the parties did not intend to exclude, and exclusion clauses in any new contracts must be drafted carefully so as not to have this effect.