Australia: Essential things you should know about contracts – Part III

Here are the last of the key things you should know about contracts – even if you have a lawyer acting for you.

Liability and indemnity clauses

Liability and indemnity clauses are used in contracts to:

  • allocate risk between the parties
  • limit or even exclude liability on the part of a party

These issues are invariably not addressed when the contract is being negotiated and they are often only considered later when negotiating the wording of the contract.

Sometimes they are unnecessary - for example, if your only obligation under the contract is to pay for services provided by the other party, then the risk of incurring liability to the other party beyond that fee is not great and can be easily managed.

In recent times it has become increasingly difficult for parties to limit their liability due to the existence of statutory causes of action for misleading and deceptive conduct – against which they are ineffective.

One particular clause of limited use is a "party/party indemnity". Under this kind of clause, one party agrees to indemnify the other party against a particular loss. Often, this kind of indemnity is not necessary because, in the event of loss, the party suffering the loss can sue the other party anyway - seeking remedies through contract law, negligence or statutory avenues such as misleading and deceptive conduct.

Agreeing to indemnify the other party under this kind of clause can also negate your insurance cover.

A contract may also include a clause for liquidated damages. This is a predetermined amount payable upon a particular breach of the contract by the party which breaches the contract. Sometimes this kind of clause is drafted in a manner which seeks to punish the breaching party for its wrongdoing, in which case it is a penalty clause. Penalty clauses are generally not enforceable. See our blog on this.


Many lawyers assisting with the negotiation and drafting of commercial contracts do not provide tax advice. When it comes to the tax effects of a particular contract, you may wish to involve specialist tax adviser, particularly during the negotiation stage.

Issues that frequently affect commercial contracts are GST-based. The parties and their lawyers need to be aware whether a supply of goods or services are:

  • taxable – the supply is taxed but the payer can claim input tax credits
  • exempt – for example, charities do not pay GST but can still claim input tax credits
  • input taxed - where the supply is not taxed and the organisation cannot claim input tax credits (or, for some financial products, is limited to claiming 75% of input tax credits) – for example, managed investment scheme fees or interest on mortgages

Prices are taken to be GST inclusive unless the contract specifies otherwise. Your contract must make it clear if GST is not to be included in the quoted price. A case in November 2013 provided valuable lessons on this when a Court had to decide whether the purchase price of a property included GST. The relevant clause in the contract contained ambiguous wording. See our blog on this case for more details.

To ensure internal consistency in your contract, make sure the fees listed (sometimes they are listed in a Schedule to the contract) match any clauses in the contract which provide for the treatment of GST generally.

If you are negotiating a contract for a sale of business, there is no GST payable on the sale, provided the sale is of a going concern. However, there must be written agreement between the parties that the sale is of a going concern. Generally, this would appear in the contract itself.


Sometimes your lawyer will advise you that your "contract" should in fact be executed as a deed. This is because, if it is not clear that a party giving something up under the agreement is obtaining something in return, you may not have what is known as "consideration" and the contract may not be enforceable at law.

A deed means that the contract should be enforceable regardless of whether there is consideration. Your lawyer may prefer a deed, for example, if you are drawing up a restraint of trade agreement or a personal guarantee. The only real downside to executing as a deed is that the signing process is slightly more complicated.

If the document is to be a deed, it should be referred to as a deed throughout the document.

If the other party is an individual who has an agent signing on their behalf using a Power of Attorney, your lawyer should ask to see the signed Power of Attorney. Careful wording of the execution provision can attract some useful statutory protections if a Power of Attorney is being used by the other side. You can expect that your lawyer would probably have no issues with a properly executed Power of Attorney from interstate - but that they are likely be more wary of an overseas one.

Similar protections are also available where a company executes the document (whether an agreement or a deed) in accordance with section 127 of the Corporations Act 2001. The execution provisions will generally refer to this provision.

Different drafts

Negotiations between parties often lead to there being multiple drafts or versions of a contract before it is finalised. The "Compare Documents" function in Word allows you to check that nothing has slipped into the latest draft, courtesy of the other party, other than what they have explicitly told you about.

You may want to use Word to track changes and make comment on drafts internally in your organisation or between your organisation and its external lawyer. Be careful of this and of forms of metadata associated with the document which you would prefer the other party not to see. Remember, there is a lot more to an electronic document than what immediately meets the eye and you may, as a result, inadvertently give away your negotiating position.

Other common clauses

A contract will often contain a clause stating that the contract is governed by the law of a particular Australian jurisdiction. For most commercial contracts, it is of little consequence which jurisdiction is nominated and it is generally not worth quibbling over.

A contract will also often contain a dispute resolution clause. This sets out in advance the process to be followed should a dispute arise between the parties in relation to the contract, and can be used as an alternative to lengthy and expensive Court cases.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.