Limitation of liability clauses in contracts. What makes them effective?

Supreme Court of New South Wales¹

In Brief

• Whereas most insurance policies exclude liability arising under contract, insurers can positively benefit where an insured has limited or excluded its liability under contract. This usually arises where the insured's contract has a limitation or exclusion of liability clause in the insured's favour.
• These clauses seek to limit liability to a certain amount and/or exclude liability after a certain period.
• This case is a useful example of such a clause in operation. In construing a limitation or exclusion of liability clause, a court will apply the test from Darlington Futures Limited v Delco Australia Pty Ltd. ²