Limiting Liability – Business to business contracts

Parties to commercial agreements should take great care when seeking to limit their liability to a contracting party.

A combination of statutory and common law rules govern such attempts.  Notably, restrictions that fall foul of these rules are often found to be unenforceable.

The law precludes parties from excluding some forms of liability altogether, including (not exhaustively) liability for fraud, and for injury or death owing to a lack of reasonable care.

Other forms of liability, including for negligence, may be excluded, but only by clear wording in the contract.

It is particularly important to the party seeking to limit their liability that any such clauses are unequivocal, as the Courts will usually interpret clauses limiting liability against the party seeking to rely on them.

Businesses should also be aware that the Unfair Contract Terms Act 1977 (UCTA) continue to regulate the use of exclusion and limitation clauses in business to business agreements.

While some forms of limitation are precluded altogether under UCTA, others can be limited provided they pass the UCTA ‘reasonableness test’.

This statutory test provides that a term will only be reasonable if it is “a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.”

Various guidelines specified within UCTA will be applied by the courts in determining whether the test has been satisfied.

It should be appreciated that clauses that fall foul of UCTA will be of no effect, and the liability envisaged by the offending clause will be uncapped (subject to common law rules regarding remoteness and causation).

Parties seeking to draft, rely on or interpret exclusion and limitation clauses should therefore procure professional advice at an early stage.

For assistance with commercial agreements, including limitation and exclusion clauses, please contact our firm’s business law team.