What Is An Exclusion Clause? (2026 Updated)

If you’re running a business, you’ve probably seen (or used) a clause that tries to limit what you’re responsible for when things go wrong.

That’s where exclusion clauses come in. They can be incredibly useful for managing risk, but they’re also one of the fastest ways to end up in a dispute if they’re drafted poorly, buried in fine print, or push too far beyond what the law allows.

This guide is updated for current expectations around contracting and compliance, including how exclusion clauses interact with New Zealand consumer laws and unfair contract terms rules. By the end, you’ll know what an exclusion clause is, when it works, when it doesn’t, and how to use one without accidentally creating bigger problems for your business.

What Is An Exclusion Clause?

An exclusion clause is a contract term that tries to remove or limit a party’s legal responsibility for certain losses, damage, delays, defects, or other outcomes.

In plain terms, it’s the “we’re not liable if…” part of an agreement.

Businesses use exclusion clauses to:

• limit exposure to costly claims;
• set clear boundaries around what is (and isn’t) included in a service;
• reduce uncertainty if something outside their control happens; and
• help price their goods/services based on a defined level of risk.

Exclusion clauses are common in:

• online terms and conditions;
• service agreements (consultants, agencies, trades);
• software/SaaS contracts;
• manufacturing and supply contracts;
• venue hire and events agreements; and
• customer-facing retail policies.

It’s worth flagging one key point early: an exclusion clause isn’t automatically enforceable just because it’s written down. In New Zealand, whether it “works” depends heavily on how it’s drafted, how it’s presented, and what laws apply to the relationship.

Exclusion Clause Vs Limitation Of Liability: What’s The Difference?

People often use these terms interchangeably, but they’re slightly different:

• Exclusion clause: attempts to exclude liability entirely for certain things (e.g. “We are not liable for any indirect loss”).
• Limitation of liability clause: accepts some liability exists, but caps it (e.g. “Our liability is limited to the fees paid in the last 3 months”).

In practice, many contracts include both. If you’re using business terms and conditions, you’ll often see a mix of exclusions, caps, and risk-allocation wording working together.

Why Do Businesses Use Exclusion Clauses (And What Are The Risks)?

Exclusion clauses aren’t about “getting away with bad work”. Used properly, they’re a risk management tool that helps both sides understand what happens if something goes wrong.

For example, imagine you’re a marketing consultant. A client might want you to guarantee their sales results. But you can control strategy and execution, not their product quality, pricing, market conditions, or customer demand. An exclusion clause can clarify that you’re not responsible for outcomes that aren’t reasonably within your control.

Common Business Situations Where Exclusion Clauses Matter

• Service delays: suppliers run late, weather prevents work, a key subcontractor is unavailable.
• Third-party failures: courier delays, platform outages, payment processor downtime.
• Customer misuse: clients don’t follow instructions and then blame you for the result.
• Consequential losses: a minor defect leads to a big downstream business loss claim.

The Main Risk: Overreaching Clauses Can Backfire

If your clause is too broad (or tries to exclude liability in a situation where the law doesn’t allow it), you can run into issues like:

• the clause being interpreted narrowly (meaning you don’t get the protection you thought you had);
• the clause being unenforceable; or
• a regulator or customer alleging your terms are misleading or unfair.

This is why exclusion clauses should never be “set and forget”. They need to match what your business actually does, who you sell to, and what risks you can genuinely control.

Are Exclusion Clauses Enforceable In New Zealand?

They can be, but enforceability depends on context. New Zealand contract law generally allows parties to agree on how risk is allocated. However, there are important limits.

Here are the big factors that affect whether an exclusion clause is likely to be enforceable.

1. Was The Clause Incorporated Into The Contract Properly?

Even a well-drafted exclusion clause may fail if it wasn’t properly brought to the other party’s attention before the contract was formed.

For example:

• If your terms are on your website but the customer never had a reasonable chance to read them, you may have an uphill battle.
• If the clause is hidden in small font or only provided after payment, you could face arguments it wasn’t part of the deal.

Practically, this means you should make sure your contract acceptance process is clear (e.g. signing an agreement, ticking a checkbox online, or clearly referencing terms in quotes and invoices).

2. Is The Wording Clear And Specific?

Courts generally interpret exclusion clauses strictly. If there’s ambiguity, it’s often interpreted against the party relying on it (especially if that party drafted the contract).

That means a clause like “we’re not responsible for anything” is not only risky, it’s usually ineffective.

Instead, a better clause is tailored and specific, such as excluding liability for:

• losses caused by customer-provided information being incorrect;
• delays caused by events outside your reasonable control (often addressed under a Force Majeure approach);
• indirect or consequential loss (where appropriate); and
• third-party platforms or services you don’t control.

3. Does The Law Override The Clause?

This is the big one. Some types of liability can’t be excluded in certain circumstances, even if both parties “agree”.

The most common New Zealand laws that affect exclusion clauses are:

• Consumer Guarantees Act 1993 (CGA)
• Fair Trading Act 1986 (FTA)
• Contract and Commercial Law Act 2017 (CCLA)
• unfair contract terms rules (under the FTA for standard form consumer contracts)

So, to work out if your exclusion clause is enforceable, you need to know: are you dealing with consumers, or is this a business-to-business (B2B) arrangement?

How Do Exclusion Clauses Work Under The Consumer Guarantees Act And Fair Trading Act?

If you sell goods or services to consumers in New Zealand, you need to be careful. Consumer law is designed to stop businesses from contracting out of basic protections.

Consumer Guarantees Act 1993: Limits On Contracting Out

The CGA gives consumers automatic guarantees, such as that goods will be of acceptable quality and services will be carried out with reasonable care and skill.

In many consumer situations, you can’t simply exclude these guarantees with a clause in your terms.

However, in some cases where goods or services are supplied for business purposes, a supplier may be able to contract out of the CGA if the contracting-out wording is correct and the supply is genuinely for business use. This is an area where getting tailored legal advice matters, because a “one-size-fits-all” CGA disclaimer can create real risk.

Fair Trading Act 1986: You Still Can’t Mislead People

Even if you have an exclusion clause, the FTA still applies. You generally can’t:

• make misleading or deceptive statements about what your product/service does;
• hide key limitations in fine print; or
• use broad disclaimers that contradict your marketing claims.

For example, if your website promises “guaranteed results”, an exclusion clause saying “we don’t guarantee results” is likely to cause problems. At best, it creates confusion. At worst, it could be argued you misled customers.

Unfair Contract Terms: Watch Out For Standard Form Consumer Terms

If you use standard terms (like website terms for customers), exclusion clauses can also be scrutinised as potentially “unfair” in certain situations.

This doesn’t mean you can’t manage risk. It means you need to do it reasonably, transparently, and in a way that reflects legitimate business interests.

If you’re using online terms, it’s often smart to treat your key clauses (including exclusions, cancellation terms, and payment terms) as part of an overall risk strategy, not as isolated paragraphs. This is where well-drafted Website Terms and Conditions can make a big difference.

What Should A Good Exclusion Clause Include?

A “good” exclusion clause is one that is clear, fair in context, and actually matches how your business operates. It’s not about excluding everything. It’s about drawing sensible boundaries.

1. Clear Description Of What Liability Is Being Excluded

Start with clarity. For example, you might exclude liability for:

• indirect or consequential loss (where appropriate);
• loss of profits (often treated as consequential, but not always);
• loss arising from third-party services you don’t control;
• customer-supplied data being inaccurate or incomplete; and
• delays outside your control.

The tighter the link between the exclusion and a real business risk you can explain, the safer it tends to be.

2. A Reasonable Limitation Of Liability (Where Exclusion Is Too Harsh)

Sometimes a total exclusion isn’t realistic, especially if you’re dealing with important services. A cap can be a more balanced approach.

Common caps include:

• capping liability to the fees paid under the agreement;
• capping liability to a stated dollar amount; or
• limiting liability to the cost of re-supplying the services.

If you want a cap that’s commercially sensible and legally defensible, it’s worth thinking about your insurance, typical contract value, and worst-case scenarios.

This is closely related to the broader concept of limitation of liability and how liability is shared between parties.

3. Carve-Outs: The Things You Can’t (Or Shouldn’t) Exclude

Many contracts include carve-outs that say the exclusion clause doesn’t apply to certain serious issues, such as:

• fraud;
• wilful misconduct;
• breach of confidentiality;
• IP infringement (depending on the deal); and/or
• death or personal injury caused by negligence (more common in some jurisdictions, but still a useful drafting consideration).

Carve-outs can make a clause more balanced and more likely to stand up in practice.

4. Consistency With The Rest Of The Contract

Exclusion clauses should match your other contract terms, including:

• your scope of work and deliverables;
• your payment and refund terms;
• your termination rights; and
• your dispute resolution process.

For example, if your agreement promises a specific outcome or service level, an exclusion clause that contradicts it can create confusion and make enforcement harder.

If you’re putting together a tailored Service Agreement, it’s usually best to draft the scope and exclusions together, so the risk allocation makes sense end-to-end.

Common Mistakes With Exclusion Clauses (And How To Avoid Them)

Exclusion clauses are often copied from templates, borrowed from overseas contracts, or added at the last minute. That’s usually where the trouble starts.

Mistake 1: Trying To Exclude Everything

A clause that attempts to exclude “all liability for any loss” can be:

• hard to enforce;
• more likely to be challenged as unfair (especially in consumer contexts); and
• commercially damaging (it can scare off good customers or partners).

A better approach is to exclude specific categories of loss you can’t reasonably control, and then cap the rest.

Mistake 2: Hiding The Clause In Fine Print

If your exclusion clause is buried, you may face arguments that it wasn’t properly incorporated into the contract, or that it’s inconsistent with what the customer reasonably expected.

Practically, you can reduce this risk by:

• ensuring the clause is in the signed agreement (or clearly accepted online);
• using clear headings like “Liability” or “Exclusions”; and
• making sure your sales team don’t make verbal promises that contradict the written terms.

Mistake 3: Inconsistent Marketing And Contract Terms

If your advertising says one thing and your exclusion clause says another, you’re creating a mismatch that can lead to disputes and potential Fair Trading Act exposure.

A good rule of thumb: your contract should reflect what you actually sell and how you actually sell it. If your website, quote, or proposal contains commitments, your terms should align with those commitments.

Mistake 4: Forgetting Related Clauses That “Carry” The Risk Allocation

Sometimes the exclusion clause is only one part of the protection you need.

Depending on your business, you may also need:

• a clear scope and acceptance criteria;
• confidentiality clauses for sensitive information (often tied to a privacy vs confidentiality distinction);
• strong termination and payment terms; and
• a dispute resolution clause.

If you collect customer information while providing your services, it’s also important that your external-facing documents are consistent, including your Privacy Policy.

Mistake 5: Using The Same Clause For Every Customer Type

A clause that works well for B2B contracts may be inappropriate for consumer customers, and vice versa.

For example, if you sell to both:

• consumers through an online store; and
• wholesale customers on account,

you may need different terms, different CGA contracting-out wording (where available), and different risk allocation settings.

This is one of the reasons it’s risky to rely on generic templates. Your contracts should fit your business model and customer base.

Key Takeaways

• An exclusion clause is a contract term that removes or limits liability for certain types of loss or situations, and it’s a common way businesses manage risk.
• Whether an exclusion clause is enforceable in New Zealand depends on how it’s incorporated, how clearly it’s drafted, and whether consumer protection laws override it.
• The Consumer Guarantees Act 1993 can restrict your ability to exclude liability when dealing with consumers, while business-to-business contracting can allow more flexibility (if done properly).
• The Fair Trading Act 1986 still applies even if you have exclusions in your contract, so your disclaimers can’t contradict your marketing or mislead customers.
• Stronger exclusion clauses are specific, commercially reasonable, consistent with the rest of the contract, and often paired with a sensible cap on liability.
• Overly broad, hidden, or copied-and-pasted exclusion clauses can backfire and increase your risk of disputes or unenforceable terms.

If you’d like help reviewing or drafting an exclusion clause that actually fits your business (and works alongside your wider terms), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.