A limitation clause will only be valid if it is incorporated in the contract terms. The limitation clause must be a term of a binding and enforceable contract which the other party has agreed to and is therefore contractually bound not to recover more than the agreed limit.
1. Incorporation in negotiated B2B contracts
In a written/ negotiated contract, incorporation should be relatively straightforward. Each party is responsible for reading and understanding the contract terms before agreeing to them. All the signed or accepted terms will generally be binding even if they have not been read and/ or understood by the other party, or alternatively, if they have not been specifically drawn to that party's attention.
However, sharp or underhand practice in negotiating can lead to problems in enforcing limitation clauses. Although a party has no obligation to explain the contract to the other party, that party should not take advantage of the other party's mistake. A dispute might follow, or even a claim for rectification.
In a contract made orally or by conduct, there could be problems identifying the terms that have been incorporated into the contract and whether they are valid and enforceable. In such cases, a determination as to whether the term is valid and enforceable will depend on the facts.
2. Incorporation in B2B standard terms
A party may agree to a contract on standard terms by signing or expressly indicating consent to those terms.
Alternatively, a party may indicate or imply acceptance by starting to perform the contract, or demanding and/ or accepting the other party's performance. In such instances a party's standard terms are incorporated into the contract if they are fairly and reasonably brought to the other party's attention before the contract was made, and were not overruled by any competing terms in what is termed the “Battle of the Forms”.
If one term in a set of standard terms is particularly onerous or unusual, best practice is that the party relying on it should bring the terms to the attention of the other party thereby reducing the risk of a later successful challenge that the term is not valid or enforceable.
