26 June 2015 by

Is your limitation of liability clause enforceable?

If you own a business and enter into a contract with a customer, supplier or another party, it is important to ensure that you have a ‘safety net’ within the contract that limits your liability should things not go quite to plan. How the limitation clause is worded is also extremely important and should be considered carefully.

In recent cases, the Courts have found that many ‘limitation of liability’ clauses within standard business to business contracts were unreasonable and therefore unenforceable under the Unfair Contract Terms Act 1977. This Act applies to clauses that aim to restrict or exclude a party’s contractual liability.

A clause that looks to exclude all claims for financial losses incurred by the other party, if something goes wrong, is more likely to be considered ‘unreasonable’ by the Courts. Instead, when a limitation clause sets a financial limit for such claims, for example a certain percentage over the invoiced value, this is much more likely to be deemed reasonable and therefore enforceable by the Court. Whilst this is a very general rule, the interpretation of all limitation of liability clauses will usually turn on the facts of the particular case (and not necessarily what is stated in the contract itself).

In order to satisfy the ‘reasonableness test’, the Courts will also want to see that the parties have taken into account the likely consequences should the contract be breached for any reason. They will not usually look too favourably on any party which has simply tried to limit its own liability if, in doing so, it leaves the other party to the contract unable to recover losses which are the likely result of any breach.

If you would like further advice on the scope, drafting or enforceability of any exclusion or limitation of liability clauses, in any of your commercial contracts, please contact Lauren Fitzpatrick on 020 7288 4751 or email laurenfitzpatrick@boltburdon.co.uk

12 June 2015 by

Can you afford Justice?

On 9 March 2015 the government increased court fees in England and Wales dramatically. Previously the maximum fee a litigant […]

19 June 2015 by

Court of Protection Panel Deputy Appointment

The Court of Protection oversees the protection of the affairs of individuals who lack mental capacity. A Deputy is someone […]

Signup To Our Weekly e-News

"*" indicates required fields

We’ll never share your details with any third party in line with our privacy policy.