3 things you need to know about liability clauses in business-to-business contracts…

Liability makes most lawyers shudder – so goodness knows how businesspeople must feel. From a lawyer’s perspective, it’s often a contentious part of a contract and it’s no wonder: if things go wrong, it’s these provisions that count; it’s where the buck stops, where the line in the sand is drawn. And with the best intentions in the world, when there is lots of money and reputation at stake, liability provisions in contracts end up being the subject of much dispute. Clauses are always written in a certain way to try and navigate their way around the mass of case law that’s developed around this issue.  If the exclusion or limitation clause breaks the legal rules, then it will fail, and the supplier will be liable for more than it was expecting or intended.

 

Here are a few things that might help demystify the topic:

 

1. Liability is about how much the supplier must payout if it is in breach of contract etc

If the supplier is in breach of contract, then the customer will be entitled to recover certain losses arising because of the breach. Liability clauses are all about trying to minimise the payments made by the supplier. They often try to limit/exclude claims in relation to other areas of law as well breach of contract (e.g., tort).

 

2. It is different from insurance

Liability is about how much the supplier must pay if found culpable and insurance is about whether the supplier can claim back through its insurance to help foot the bills! Insurance is complicated and there are no policies to cover breach of contract per se! What insurer is going to cover that?! Rather, it’s about certain risks, which the supplier may agree to take under the contract, that it may be able to get insurance for (e.g., product liability, to cover certain product-related claims).

 

3. Excluding ALL liability is not possible

There are many rules about the extent to which the supplier’s liability can be limited or excluded, which vary according to whether the supplier is dealing on its standard terms or not. For example, if suppliers are selling on their standard terms of business:

  • excluding or limiting liability for death or personal injury arising because of the supplier’s negligence, is not permitted
  • limitations and exclusions must be “reasonable”
  • linking the supplier’s liability to insurance might not always be reasonable (the availability of insurance is a factor in considering whether exclusion or limitation of liability is “reasonable”, but there is not a definitive link).

If you would like to discuss in further detail or have any questions about liability clauses in business-to-business contracts, then get in touch with Tracey today: tracey@law-point.co.uk.