Limitation of liability

Capping what you could owe if things go wrong. The most important clause in most contracts.

What it means

A limitation clause caps liability by amount, by type of loss, or both, and excludes certain categories such as indirect and consequential loss.

Why it matters

Without one, liability is unlimited. A £5,000 contract can generate a claim for the customer's entire lost profit, and that is the exposure the clause exists to remove.

What it looks like in practice

Typical structure: exclude indirect and consequential loss and loss of profit, cap direct loss at the contract value or a multiple, and carve out the things that cannot lawfully be excluded.\n\nDeath or personal injury caused by negligence, and fraud, cannot be excluded.

What to watch out for

Unreasonable clauses. Under the Unfair Contract Terms Act a clause in standard terms must be reasonable, and an unreasonable one fails entirely — leaving no cap at all.\n\nAnd caps that are lower than your insurance excess, which achieve nothing.

Where to get proper advice

A commercial solicitor. For a clause you rely on regularly, one properly drafted set is cheaper than one dispute.