Three Contract Clauses Every Business Should Review Before Signing

One of the most common reasons businesses seek advice from a commercial lawyer is not because a deal fell apart – but because a contract was signed without fully understanding how risk had been allocated.

Whether you are a business owner, founder or senior manager, you are routinely presented with contracts drafted by suppliers, customers or other commercial counterparties. These contracts are rarely neutral. They are designed to protect the interests of the party that prepared them.

While every agreement should be reviewed as a whole, experienced contract and commercial lawyers in Melbourne know that three clauses consistently have the greatest impact on legal and financial exposure:

• Limitation of liability
• Indemnities
• Termination rights

Understanding how these clauses operate – and how they should change depending on the commercial context – is critical to protecting your business.

1. Limitation of Liability: Understanding Where Risk Sits

A limitation of liability clause determines how much a party can be liable for if something goes wrong. It is often the most commercially significant clause in a contract.

Key issues to review

• Is liability capped? If so, is the cap tied to fees paid, a multiple of fees, or an arbitrary dollar amount?
• What losses are excluded? Common exclusions include indirect or consequential loss, loss of profits, or loss of data.
• Are there carve-outs? Liability for intellectual property infringement, confidentiality breaches or privacy violations is often excluded from the cap.

Why context matters

If you are the supplier, an uncapped or poorly drafted liability clause can expose your business to losses far exceeding the value of the contract. If you are the customer – particularly where the contract relates to technology, data or core operations – a low liability cap may leave you without meaningful protection.

This issue frequently arises in supplier and customer contracts, which is why limitation of liability is a central focus of advice provided under Clearscope Legal’s Commercial Contracts services: https://clearscopelegal.com.au/commercial- contracts.

2. Indemnities: Risk That Often Sits Outside the Cap

Indemnities are often treated as “standard” clauses, but they can dramatically shift risk – often without being obvious to non-lawyers.

An indemnity is essentially a promise to compensate the other party for specific losses, commonly on a dollar-for-dollar basis.

Why indemnities require careful review

• They often operate outside the limitation of liability
• They may apply regardless of fault
• They frequently cover third-party claims and legal costs

Common indemnities to watch

• Intellectual property infringement
• Privacy or data protection breaches
• Regulatory non-compliance
• Misuse of confidential information|

For businesses dealing with branding, software, content or data, indemnities often intersect with advice from an intellectual property lawyer or technology lawyer.

Clearscope Legal regularly explores these risks in its blog articles on IP ownership, copyright disputes and technology contracting: https://clearscopelegal.com.au/blog/

However, the mechanism for managing those risks almost always sits within the commercial contract itself – reinforcing why contract structuring is so critical.

3. Termination Rights: Your Exit Strategy

Termination clauses determine how – and how easily – a commercial relationship can end. A contract that looks acceptable at the outset can become a liability if it lacks practical exit rights.

Key questions to ask

• Can either party terminate for convenience?
• What notice periods apply?
• Are there termination rights for material breach or insolvency?
• What obligations survive termination (including IP ownership, confidentiality and data return)?

Termination risk is particularly important in long-term supplier arrangements,
technology contracts and business sale or purchase transactions – areas where
advice from a business lawyer in Melbourne can materially reduce commercial
exposure.

A Smarter Strategy: Control the Contract from the Start

One of the most effective long-term strategies for reducing contract risk is to develop a tailored suite of your own commercial contract templates, rather than constantly reacting to other parties’ documents.

Why this approach works

• You control the allocation of risk from the outset
• Key clauses are carefully drafted without visible “redlines”
• Negotiations are faster and less adversarial
• Your contracts reflect how your business actually operates

While engaging a contract lawyer to develop bespoke templates involves an upfront cost, businesses often find it quickly pays for itself – particularly where contracts are used repeatedly.

This approach is especially valuable for businesses regularly entering into:

• Supplier and customer agreements
• Technology and SaaS contracts
• IP licences and assignments
• Privacy and data-sharing arrangements
• Business sale and purchase transactions

When to Seek Advice

If your business regularly signs contracts presented by suppliers, customers or partners, early input from a commercial and contract lawyer in Melbourne can significantly reduce both legal and commercial risk.

Clearscope Legal provides practical advice across:

• Commercial and contract law
• Technology and AI-related agreements
• Intellectual property and licensing
• Privacy and data protection
• Business purchases and sales

To explore related insights, visit the Clearscope Legal blog: https://clearscopelegal.com.au/blog/

Or contact us to discuss how we can help you structure and negotiate contracts that genuinely protect your business.