UK: Limitation of Liability - An Update

Originally published April 2010

As we explored in an article from July 2008, the ability of one party to use standard limitation of liability provisions to avoid liability for a breach has always been a tricky aspect of contract law. This article sets out some general principles and proceeds to examine some recent case law on the complex topic of the way in which liability can effectively be limited.

General Principles

It is imperative that clauses which seek to limit liability are clearly drafted, or they risk being ineffective (Ailsa Craig Fishing Co Ltd v Louis Dreyfus & Co 1983 1 All ER 101).

The contra proferentum rule provides that where the meaning of such a clause is unclear or ambiguous it will be construed against the party who drafted it. Although the contra proferentum rule applies to all exemption clauses, the Courts are less stringent in applying the principle to those clauses which merely limit liability as opposed to those which seek to exclude liability in its entirety. This is founded on the notion that it is considered 'inherently improbable' that a party would agree to the total exclusion of another's liability, whereas "there is no such high degree of improbability that he would agree to a limitation of liability" (Ailsa Craig). But generally this rule is 'a rule of last resort' and is only applied where the clause does not have a clear meaning.

Exclusions in Business-to-Business Contracts

What can and cannot be excluded will turn on the facts of each case; but relevant issues may include the legal and commercial background to the contract, whether the same terms are being used by other businesses, and whether the other party is a consumer.

In business-to-business contracts it is not permissible to exclude liability for:

  • death or personal injury caused by negligence;
  • breach of the implied condition of good title and no encumbrances (s.12 Sale of death, personal injury or loss of or damage to property caused by defective products (s.7 Consumer Protection Act 1987); and
  • fraud and/or fraudulent misrepresentation.
  • Subject to the 'reasonableness' test under the Unfair Contract Terms Act 1977 (UCTA), the following exclusions of liability may be permissible:
  • negligence (excluding the scenarios listed above);
  • breach of the implied conditions of fitness for purpose or correspondence with description or sample (ss 13-15 Sale of Goods Act 1979);
  • breach of contract; or
  • misrepresentation.

It is important to remember that if an exclusion clause is found to be unreason - able, it will be wholly unenforceable.

The Concept of Reasonableness in Business-to-Business Contracts

UCTA provides that 'reasonableness' is decided by "having regard to the circum - stances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made". In the light of this, it is clear that the time for ascertaining whether or not an exclusion or limitation clause is reasonable is the point at which the contract was made and so factors such as the seriousness of the loss or damage caused are less relevant.

UCTA sets out five non-exhaustive guidelines for determining the reasonableness of a limitation of liability provision:

  • the relative strengths of the bargaining positions of the parties;
  • whether there was any inducement to accept the term, or whether there was the opportunity to enter into a similar contract with another, without such a term;
  • whether the customer knew or ought reasonably to have known about the existence and the extent of the provision;
  • where the exclusion applies if some condition is not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable; and
  • whether the goods were manufactured/processed/adapted to the special order of the customer.

The recent case of Lobster Group v Heidelberg Graphic Equipment [2009] EWHC considered the concept of reasonableness and offers further clarification, although it has also raised a concern that exclusion clauses may be more vulnerable to being struck out than was previously thought.

The facts were as follows. The children's book publishers Lobster Group hired a printing press from Close Asset Finance and also entered into a warranty and a service agreement with the manufacturer of the press, Heidelberg Graphic. There were three contractual agreements in place:

  1. a Hire Agreement between Lobster and Close Asset Finance under which Lobster hired the printing press from Close Asset Finance on Close Asset's standard terms;
  2. a Warranty Agreement between Lobster and Heidelberg; and
  3. a Service Agreement between Lobster and Heidelberg.

The parties accepted that the printing press was defective, but Close Asset and Heidelberg sought to rely on the exclusion clauses in the three contracts to avoid liability for the defect.

The UCTA reasonableness test applied because the three contracts each contained the defendants' standard terms and because the defendants were attempting to exclude the implied terms of satisfactory quality and fitness for purpose under the Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982. The judge reviewed each of the exclusion clauses in turn, assessing their reasonableness in the circumstances, and so the case provides useful guidance on the application of the reasonableness test. The Court held that:

  • whilst it was reasonable for Heidelberg to exclude all liability other than the obligation to remedy defects, it was unreasonable to exclude damages for 'immediate loss' and for increased costs and expenses, because if Heidelberg failed to replace or repair a defective part then, at the very least, Lobster should be able to recover the cost of paying someone else to do this;
  • it was reasonable to exclude insurable risks, but a complete exclusion of loss was unreasonable;
  • both parties were substantial commercial entities and this consideration is usually to be borne in mind when the reasonableness test is applied.

The key message from the Lobster Group case is to give careful thought to the drafting and extent of a proposed exclusion clause and that all-encompassing, broad, or catchall clauses should be avoided as they are at greatest risk of being struck out.

Another recent case worthy of review is Internet Broadcasting Corporation Ltd (NetTV) v Mar LLC EWHC 844 (2009) which illuminated many of the legal issues relating to exclusion clauses and also clarified the law in respect of deliberate wrongful repudiation.

NetTV provided interactive internet television platforms. Mar LLC provided information and services to hedge funds and arranged conferences for the hedge fund industry. The parties contracted for NetTV to set up and provide an internet television channel which would broadcast material agreed by Mar LLC. The agreement could not be terminated for three years, other than for a material breach that was not remedied within 30 days. NetTV wrongfully repudiated (ie committed a fundamental breach of) the agreement (which it accepted to be a wrongful repudiation) but sought to rely on an exclusion clause to protect it from a substantial liability for loss of profits arising from its wrongful repudiation. The exclusion clause provided that neither party would be liable to the other for various types of loss, including loss of profit. The precise wording of the clause was as follows:

"...neither party will be liable to the other for any damage to software, damage to or loss of data, loss of profit, anticipated profit, revenues, anticipated savings, goodwill or business opportunity, or for any indirect or consequential loss or damage."

The Court stated that there is a rebuttable presumption that an exclusion clause cannot be relied upon where there has been a deliberate repudiatory breach of contract. The normal anticipation of the parties is that a party which repudiates its contractual obligations should be liable to compensate the other party for the loss. But the Court also affirmed that there is no general legal principle which prevents a party from profiting from its own wrong and so the case hinged on the construction of this clause.

It was held that a literal interpretation of the clause would create a "commercial absurdity". Explicit and strong language must be used if an exclusion clause was successfully to exclude the liabilities of both parties in the event of a deliberate repudiatory breach. In this case, the drafting contained no such clear strong language as to deliberate wrongdoing, let alone deliberate and repudiatory wrongdoing.

Significantly, it was also held that the agreement "being in the nature of a joint venture" would have had the object of mutual profit as its central tenet. A literal interpretation of the exclusion clause would enable either party to repudiate the contract deliberately without any liability for loss of profit, "even though loss of profit is likely to be the only serious consequence for either party of repudiation". So in a business context, the Courts are hostile to clauses that leave an innocent party without substantive redress; and because financial considerations underpin most commercial contracts, it should be carefully considered whether an exclusion clause which seeks to exclude all heads of financial loss will result in the innocent party being left with no meaningful redress in the event of a breach.

Whilst the NetTV case focuses on the specific instance of deliberate repudiatory breach, it has also reminded us of the most important aspects of an effective exclusion clause: clear, strong and precise language which is, in the specific context of the contract, reasonable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions