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Limitation of liability and your business

Isabelle Cam, a commercial litigation solicitor advises clients on a wide range of contentious matters. A recent meeting with a client highlighted some considerations that you should be aware of when looking at either your own contracts or ones you are signing up to when it comes to limiting liability.

All businesses and organisations are feeling the external pressures of the current economic climate and cost of living crisis. Considering and negotiating contractual limitations to your liability is one way of seeking to control financial exposure and protect your business.

Business to business contracts are controlled by principles which limit liability. Some of these controls have been developed by the courts, while others are set out in legislation, for example within the Unfair Contract Terms Act 1977 (“UCTA”). In instances where these principles have not been followed there is a risk that limitation clauses contained in contracts or terms and conditions may not have the desired effect. It is often the case that contractual disputes will involve arguments over the effect and scope of limitation clauses, so it is vital that your contracts are carefully reviewed.

A limitation of liability clause must be incorporated into the contract in question. However, even if a contract incorporates standard terms and conditions, a particularly harsh limitation of liability included in those terms and conditions (particularly if not brought to the attention of the other contracting business) may not be considered to have been legally incorporated and could therefore be unenforceable. We can discuss whether a limitation of liability provision has been incorporated into your contract and how this may affect your dispute.

Recently, we have advised a warehouse storage and distribution company on the extent of its liability for loss suffered by a customer due to delays and increased costs in performing the contract. The amount claimed was approximately £55,000, however, upon review the terms and conditions we advised our client that such claims were outside of the scope of the limitation of liability clauses in their contract. This case shows the importance of thinking ahead to worst case scenarios when drafting terms.

Some kinds of liability are impossible to limit, for example fraud or dishonesty, death or injury caused by lack of reasonable care. Some other liabilities are hard to limit unless the parties have expressly agreed to limit them, such as negligence or misrepresentation. Other limitations may only be valid if they can be considered reasonable, for example where UCTA applies to the contract. We can advise you whether the subject of your dispute falls within the limitation of liability clauses within your contract and the application of this to your dispute.

How can we help?

Our commercial litigation team are experienced in dealing with disputes concerning limitation of liability. Our team can undertake an initial review of your position and develop a strategy with you to seek to achieve a practical and commercial outcome to your dispute. Please contact Isabelle and Cathy.


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