Every commercial transaction involves entering into contracts which, in turn, involves taking commercial risks of varying degrees; this is a natural part of business. A prudent business person should be imposing suitable limits on their liability under the commercial contracts they enter into – particularly where there is a higher degree of risk being taken on e.g. professional services or the manufacture and supply of bespoke or high value products.
How should you begin to think about limiting your liability?
The starting point is to undertake a review of your commercial contracts and ask yourself the following questions:
Why might you need a solicitor to advise on limiting liability within your business?
Clauses which limit or exclude liability must be drafted with extreme care and, wherever possible, they should be professionally drafted. If the limitations or exclusions are not professionally drafted, the clauses might be drafted too widely using inappropriate or standard wording, which runs the risk of the entire clause being unenforceable. This would be problematic because an unenforceable clause is the same as it not being in the contract at all i.e. your liability will potentially be unlimited.
Are there any risks that can’t be limited or excluded?
Yes. Under the Unfair Contract Terms Act 1977 (UCTA) – which applies to business-to-business contracts – there are limits on the extent to which liability can be limited for breaches of contract, negligence or other breaches of duties. For example, it is not possible to exclude or restrict liability for death, personal injury from negligence, fraud or fraudulent misrepresentations, and any attempt to do so will be void.
Other exclusions and limitations will only be void if they cannot be shown to be reasonable (taking account of the relative bargaining strength of the parties involved, the availability of insurance and the information available at the time of the contract).
What techniques are available when seeking to exclude or limit liability?
The usual techniques used include:
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