Too often, limitation of liability clauses are treated as standard boilerplate – something to tidy up at the end of a negotiation once the “real” commercial points are agreed.
In reality, they are one of the most important provisions in any commercial contract.
I recently contributed to a Lexology Pro article on limitation of liability clauses and what corporate counsel need to know to minimise risk. The discussion reinforced something I see regularly in practice: when these clauses are drafted or negotiated badly, they can expose businesses to precisely the risks they were intended to manage.
A poorly calibrated liability regime doesn’t just increase litigation risk. It can undermine funding prospects by raising red flags in due diligence. Would you want to invest in a business that hasn’t adequately protected itself from a liability perspective?
From a practical standpoint, three themes come up time and again:
- Understand the real risks before negotiating the cap. Liability limits should never be plucked from the air or justified solely by “market standard” language. They need to reflect the losses that could realistically arise if things go wrong, the parties’ ability to manage those risks and the wider commercial context of the deal.
- Don’t concede carve‑outs by default. Some customers, particularly those with stronger bargaining power, will seek to leverage their market position to negotiate more favourable terms, attempting to exclude certain types of claims from liability caps altogether. These exclusions can punch enormous holes in an otherwise sensible agreement. Push back on familiar “try‑ons” like “we’ve never agreed to this before”. If the deal matters enough, there is always a first time!
- Clarity and conspicuousness are non‑negotiable. Courts will not rescue vague drafting that fails to communicate the parties’ intentions. Ambiguous language risks either being struck down entirely or construed against the party relying on it.
The key takeaway? Limitation of liability clauses are not administrative afterthoughts. They are central risk‑allocation tools that deserve early, careful and commercially informed attention.
You can read the full Lexology Pro article on this topic by clicking here. Please note this this link requires a subscription.
