Q&As

Why do some limitation of liability clauses in commercial agreements exclude liability for loss of: profit; revenue (or turnover); and business; what do each of those exclusions potentially cover and is it useful to refer to all of those heads of loss when seeking to exclude financial liability? To what extent do they cover the same losses?

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Produced in partnership with Lynne Counsell of 9 Stone Buildings
Last updated on 11/05/2020

The following Commercial Q&A produced in partnership with Lynne Counsell of 9 Stone Buildings provides comprehensive and up to date legal information covering:

  • Why do some limitation of liability clauses in commercial agreements exclude liability for loss of: profit; revenue (or turnover); and business; what do each of those exclusions potentially cover and is it useful to refer to all of those heads of loss when seeking to exclude financial liability? To what extent do they cover the same losses?

Why do some limitation of liability clauses in commercial agreements exclude liability for loss of: profit; revenue (or turnover); and business; what do each of those exclusions potentially cover and is it useful to refer to all of those heads of loss when seeking to exclude financial liability? To what extent do they cover the same losses?

Limitation of liability/exclusion clauses

Commercial contracts will usually include an exclusion or limitation of liability clause. An exclusion clause is one which excludes all liability for certain breaches of the contract. A limitation of liability clause is one which limits the liability of a party. This can be in a variety of ways such as restricting the type of loss recoverable or the remedies available, imposing a time limit on any claims for breach or capping the amount payable for breach. See Practice Note: Exclusion and limitation of liability.

Any such clauses will need to be interpreted alongside the usual rules on causation and remoteness of damages. See Practice Note: Causation and remoteness in contractual breach claims.

Section 3 of the Unfair Contract Terms Act 1977 can apply a reasonableness test to a clause in a commercial contract which purports to limit or exclude a party’s liability if it is contained in that party’s standard terms. See Practice Note: Exclusion and limitation of liability—Liability arising in contract.

Such clauses are part of the

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Key definition:
Limitation of Liability definition
What does Limitation of Liability mean?

Limitation of liability means a contractual provision to reduce or exclude the types and amounts of liabilities one party may recover from another party relating to default or non-performance in connection with a contract. Such provisions are subject to numerous controls and restrictions imposed by statute and by common law.

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