Limitation Of Liability Clauses In New Zealand Contracts

If you’re running a small business, contracts are everywhere - proposals, quotes, service agreements, supplier terms, online terms and even “quick” email deals.

And when something goes wrong (a delayed delivery, a software bug, a subcontractor mistake, a misunderstood scope), the first thing people often look at is: who pays, and how much?

That’s exactly where limitation of liability clauses come in. Done properly, a limitation of liability clause can protect your business from “worst case scenario” claims that could otherwise wipe out months (or years) of profit. Done poorly, it might not work at all - or worse, it might create disputes because it’s unclear.

Below, we’ll walk through what limitation of liability clauses do in New Zealand, what’s commonly included, what can make them unenforceable, and how to approach them when you’re the business providing (or buying) goods or services.

What Is A Limitation Of Liability Clause (And Why Do Small Businesses Use Them)?

A limitation of liability clause is a part of a contract that restricts how much one party can be legally responsible for if something goes wrong.

In plain terms, it sets rules around:

• Whether you’re liable for certain types of loss;
• How much you might have to pay (a cap); and/or
• What kinds of claims can be brought (and within what timeframe).

Small businesses use limitation of liability clauses because without them, your potential exposure can be wildly out of proportion to the value of the job.

For example, imagine you charge $5,000 for a website build. If the site launches late and the customer claims they “lost $200,000 in sales”, you don’t want your business automatically on the hook for that amount - especially if the cause is complicated (client delays, unclear instructions, third-party outages, and so on).

A well-drafted limitation of liability clause is essentially risk management. It helps you price your work realistically, protects cash flow, and reduces the chance that a single dispute turns into a business-ending problem.

What Does A Limitation Of Liability Clause Usually Cover?

There isn’t a single “standard” limitation of liability clause that fits every business. The right clause depends on what you do, who your customers are (consumer vs business), and what risks are realistic in your industry.

That said, most limitation of liability clauses cover a mix of the points below.

1. A Liability Cap

This is the most common approach: you set a maximum amount you’ll be liable for.

Common caps include:

• Fees paid under the contract (e.g. capped at the amount the customer paid you);
• A multiple of fees (e.g. 1x, 2x, or 3x the fees);
• A fixed dollar amount (e.g. “capped at $50,000”); or
• Insurance-based caps (e.g. capped at the amount recoverable under your insurance policy).

What you choose should link back to your commercial reality: what you’re being paid, what the risk profile is, and what you can actually afford if something goes wrong.

2. Excluding Certain Types Of Loss (Like “Consequential Loss”)

Many contracts exclude liability for “indirect” or “consequential” loss - things like loss of profits, lost revenue, lost data, business interruption, or loss of opportunity.

This is important because these categories can be huge and hard to prove or disprove. Even if you did make a mistake, it may be unfair for you to be responsible for every downstream impact on the other party’s business.

One practical tip: “consequential loss” can mean different things to different people, so good drafting often either defines it clearly or lists excluded losses directly (so there’s less room for argument later).

3. Carve-Outs (Things You Don’t Get To Limit)

Most limitation of liability clauses have exceptions, often called “carve-outs”. These are situations where liability isn’t capped or isn’t excluded.

Common carve-outs include:

• Fraud or wilful misconduct;
• Non-payment (so you can still recover overdue fees);
• Breach of confidentiality (especially where sensitive commercial information is involved);
• IP infringement (or, alternatively, this might be handled through a specific IP indemnity);
• Personal injury or death (where relevant).

Carve-outs are also a key negotiation point. If your customer wants broad carve-outs, your “cap” may not protect you in the situations that matter most.

4. Limiting How Claims Can Be Made

Some clauses also restrict the process and timing of claims, such as:

• Requiring the other party to notify you within a certain period after they become aware of an issue;
• Requiring you to be given a chance to fix or re-perform services before the customer can claim damages;
• Limiting claims to losses that are reasonably foreseeable at the time of contracting.

These terms can reduce surprise claims and encourage practical resolution before lawyers get involved.

When Can A Limitation Of Liability Clause Be Unenforceable In New Zealand?

A limitation of liability clause isn’t automatically enforceable just because it’s written in a contract.

In New Zealand, enforceability can depend on factors like:

• Who the customer is (consumer vs business);
• How the contract was agreed (negotiated vs standard terms);
• Whether the clause was presented clearly; and
• Whether the clause is reasonable in the circumstances.

Here are some common legal “pressure points” to keep in mind.

Consumer Guarantees Act 1993 (CGA)

If you supply goods or services to a consumer (generally someone acquiring them for personal, domestic, or household use), the Consumer Guarantees Act 1993 implies automatic guarantees - for example, that services will be carried out with reasonable care and skill.

In many cases, you can’t contract out of those consumer rights with a limitation of liability clause.

If you sell to other businesses, you may be able to contract out of the CGA only in limited situations - typically where the goods or services are acquired for business purposes and the parties expressly agree in writing to contract out. It’s important to do this clearly and correctly in your agreement, otherwise the CGA may still apply.

Fair Trading Act 1986 (FTA)

The Fair Trading Act 1986 prohibits misleading or deceptive conduct and false representations in trade.

A limitation of liability clause generally won’t protect you if the real issue is that you made misleading claims (for example, promising features or performance you can’t deliver, or advertising a service in a way that’s inaccurate).

This is why good contract drafting should be backed up by good sales practices - clear scopes, accurate marketing, and no “handshake promises” that contradict your written terms.

Unfair Contract Terms (Standard Form Consumer Contracts And Some Small Trade Contracts)

New Zealand has “unfair contract term” rules that can apply to standard form consumer contracts, and they can also apply to certain standard form small trade contracts (for example, where a small business is contracting on the other party’s standard terms).

Broad, one-sided limitation of liability clauses can be vulnerable if they create a significant imbalance and aren’t reasonably necessary to protect legitimate business interests.

The practical takeaway: if you’re using standard form terms (especially with consumers or small businesses), be careful about “all liability excluded, no exceptions” style clauses.

Clarity And Visibility

Even in a business-to-business deal, a limitation of liability clause can be disputed if it’s hidden, ambiguous, or inconsistent with the rest of the agreement.

Common drafting problems include:

• The contract says two different caps in two different places;
• The clause uses vague terms without definitions (e.g. “no liability for any loss”);
• The clause appears in fine print after the parties already agreed price and scope;
• The contract structure makes it unclear what document “wins” if terms conflict (quote vs terms vs SOW).

For many small businesses, the easiest way to reduce these risks is to use one clear set of terms for each service line - for example a properly drafted Service Agreement or a consistent set of online terms - rather than reinventing the wheel for every job.

How Do You Draft A Strong Limitation Of Liability Clause For Your Business?

There’s no magic sentence that works for every situation. The goal is to create a limitation of liability clause that is:

• Clear (easy to understand and hard to misinterpret);
• Commercial (matches the deal, the fees, and the risks); and
• Legally appropriate (especially when consumers are involved).

Here are some practical drafting principles we often recommend to small business owners.

Match The Clause To Your Risk Profile

A marketing consultant, an electrician, and a software developer have very different risk profiles. Your limitation of liability clause should reflect what could realistically go wrong in your work.

Ask yourself:

• What is the worst plausible loss a client could claim?
• What parts of the job rely on third parties (hosting, couriers, subcontractors, platforms)?
• What do you control vs what does the customer control?
• What does your insurance cover - and what does it exclude?

Once you know the risk, you can set a cap that makes sense. If you’re not sure, it’s usually worth getting the clause reviewed as part of a broader Contract Review, so it aligns with the rest of your agreement (warranties, indemnities, scope, and payment terms).

Be Specific About Excluded Losses

If your contract just says “we are not liable for consequential loss” without defining it, you may end up arguing about what that means (which defeats the purpose).

A clearer approach is to list excluded categories, such as:

• loss of profits or revenue;
• loss of business opportunity;
• loss of goodwill;
• loss of data;
• business interruption losses.

That way, both sides can price the deal and manage expectations from the start.

Don’t Let The Limitation Clause Clash With Other Clauses

Limitation clauses often collide with:

• Indemnities (which can create “uncapped” liability if drafted broadly);
• Warranties and service levels (which can increase exposure if they’re too absolute);
• Confidentiality obligations (where breaches can be expensive).

For example, if you promise in one clause that you’ll “ensure uninterrupted service” but later say you’re not liable for outages, you’re creating ambiguity - and ambiguity is where disputes live.

This is also why businesses often build their limitation clause into an overall set of Business Terms, rather than trying to bolt it onto the end of a quote.

Think About The Contracting “Stack” (Quote, SOW, Terms)

Many small businesses sell using a combination of documents, such as:

• a quote or proposal;
• a statement of work (SOW); and
• terms and conditions (sometimes on a website).

If these documents aren’t aligned, you can get accidental conflicts - like one document promising a refund while another excludes refunds, or one document containing a cap and another being silent.

A clean contracting process usually includes:

• a clear order of precedence (which document wins);
• signatures or clear acceptance wording; and
• consistency around the limitation of liability clause across all documents.

What If You’re The Customer - Should You Accept The Other Side’s Limitation Of Liability Clause?

Limitation of liability clauses aren’t just something you include when you sell - you’ll also see them when you buy services (from IT providers, landlords, manufacturers, agencies, and more).

If you’re being asked to accept someone else’s limitation of liability clause, it’s worth slowing down and checking what risk you’re actually taking on.

Key Questions To Ask Before You Agree

• Is the cap realistic? If the supplier’s cap is only the fees paid, will that cover your likely losses if they breach the contract?
• Are there exclusions that gut the contract? For example, if they exclude “all loss of profits” but the whole purpose of the contract is to increase revenue, you may have very limited remedies.
• Are there carve-outs that matter to you? If they handle customer data, do you need a stronger position on privacy and confidentiality?
• Do you need service credits or specific remedies? Sometimes you negotiate a clear remedy (like re-performance, credits, or step-in rights) instead of relying on damages claims later.

Sometimes you don’t need to remove the limitation clause - you just need to rebalance it, clarify definitions, or adjust the cap so it fits the commercial value and risk of the arrangement.

This is particularly important for longer-term relationships, like ongoing IT support or managed services, where a dispute could disrupt operations. In those scenarios, a properly drafted Master Services Agreement can keep the arrangement clear (scope, service levels, liability, termination rights) and reduce the chance of surprises.

Key Takeaways

• A limitation of liability clause is designed to cap or limit your legal exposure if something goes wrong under a contract, helping protect your small business from disproportionate claims.
• Most limitation clauses deal with a liability cap, exclusions for certain types of loss (often including loss of profits or business interruption), and carve-outs for issues like fraud or confidentiality breaches.
• Limitations aren’t always enforceable - especially where consumer law applies (including the Consumer Guarantees Act 1993), where the term risks being an unfair contract term on standard form contracts, and where conduct may breach the Fair Trading Act 1986.
• In New Zealand, personal injury claims are affected by the ACC scheme, so “personal injury” risk doesn’t always operate the same way as in other countries - but liability can still arise in other ways (including contractual and regulatory obligations), so get advice for your situation.
• The strongest limitation clauses are clear, consistent, and matched to the deal (fees, risks, insurance), rather than copied from a generic template.
• If you’re signing someone else’s contract, check whether the limitation of liability clause leaves you with meaningful remedies if the supplier fails to deliver.
• Well-drafted contracts work as a system - your limitation clause should align with warranties, indemnities, scope, and confidentiality, not contradict them.

This article is general information only and isn’t legal advice. If you’d like advice on your specific situation, get in touch with a lawyer.

If you’d like help drafting or reviewing a limitation of liability clause (or tightening up your contracts generally), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.