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Limiting your liability in contracts - what is enforceable?

View profile for Karen Edwards
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Terms in a contract which seek to limit or exclude liability can have a significant impact on the value of the contract. What is valid or enforceable? Generally there are three types of exclusion clauses which act to limit or exclude a party’s liability. These can exclude or limit the other party’s rights or remedies under a contract usually in relation to breach of contract or negligent performance, or to exclude pre-contracts implied terms or representations.

For an exclusion clause to be effective it must overcome three issues:

1. It must have been incorporated into the agreement. This often requires that the terms incorporating the clause will prevail over the other party’s standard terms and conditions.

2. The clause must cover the liability in question in a way that is unambiguous. Any ambiguity will either render the clause ineffective or will be construed against the party who drafted the document.

3. It must not be prohibited by statute or law – the requirements of the Unfair Contract Terms Act 1977 (UCTA), the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR) or the Consumer Protection Act 11987 (CPA).

There are three ways in which an exclusion clause may be incorporated into a contract :

1. By signature to a written, negotiated contractual document

2. By notice

3. By dealing

Karen Edwards, Commerical Solicitor, says “The easiest way to incorporate an exclusion clause is to make sure that the other party signs the specific contract containing the exclusion clause. It is not possible to exclude all liability.” Liability for death or personal injury caused by negligence cannot be excluded. The solution is to agree a limitation of liability that is acceptable to both parties.

For a free initial meeting please call 01202 499255 and Karen or a member of her team will be happy to discuss any questions you may have.