This article provides guidance on the legal framework within which it is possible to limit liability of a contracting party. This article deals with business-to-business contracts within the UK.
1. Liabilities which cannot be limited
Certain liability cannot be limited and a clause that purports to do so will be void. These include:
a. Fraud by a contracting party.
b. And, where the Unfair Contract Terms Act 1977 (UCTA) applies:
i. Injury or death caused by lack of reasonable care.
ii. Supplying goods without the right to do so.
It is common practice when drafting a contract to expressly maintain these liabilities.
2. Liabilities which can be limited expressly
Certain liabilities must be limited expressly. These include:
a. Negligence.
b. Breach of statutory implied conditions in sale of goods.
3. Liabilities which can be limited if the express clause is worded clearly
Some liabilities can be limited by clear wording - that is, they are effective if they survive restrictive interpretation. They are:
a. Dishonest or deliberate breach by another person. A party cannot limit liability for its own dishonesty, but might limit its liability for the dishonesty of an employee, agent or sub-contractor.
4. Liabilities which can be limited by a reasonable clause if UCTA applies
Clauses limiting the following liabilities are valid only if they pass the UCTA reasonableness test:
a. Breach of standard terms.
b. Negligence.
c. Breach of a contractual duty of care.
d. Breach of statutory terms for quality of goods.
e. Misrepresentation.
A clause that fails the UCTA reasonableness test is generally void.
