Your terms and conditions should always include a clause limiting a supplier’s liability to its customer. The specific details of the liability clause will depend upon the type of goods or services being supplied, the value of the agreement and what is usual in the business sector in which the parties operate.
The following issues should be covered by the limitation of liability clause.
Amount of Liability
If you do not cap the amount of your monetary liability to customers you will be liable for an unlimited amount. You can specify whatever financial cap you choose for all liabilities or specific liabilities, provided that you do not place any cap on your financial liability for:
- death or personal injury arising out of negligence; and
- fraud or fraudulent misrepresentation;
Under English law you cannot limit your liability for these issues and any attempt to do so will be invalid and could make all of your limitation of liability clauses invalid.
Type of Damage Covered
In addition to limiting the amount of your liability you should also limit the types of damages and losses for which you will be liable. Generally, liability is excluded for indirect, consequential and economic losses. If there are any particular losses that you do not want to be liable for it is prudent to specifically state these in order to ensure that they are included in your restriction. For example, the non-functioning of your website due to the Internet being unavailable.
Validity of the Limitation
In order for your limitation of liability clauses to be valid they must:
- be reasonable;
- be incorporated into the terms of the agreement with the customer; and
- be clearly worded.
There are different rules concerning the reasonableness of your limitation of liability depending upon whether you are operating business to business (BTB) or business to customer (BTC).
Any limitation clause should be included in your standard terms and conditions and the wording should be clear. Remember that any uncertainty or contradiction in the wording will be construed in favour of your customer. For example, specifically state that indemnities are included in the financial cap on liability.
If you supply goods or services outside of the UK customers often request that you change the law that applies to the agreement to their local law. Be careful when agreeing to this, as your limitation of liability clauses could be invalid under the customer’s local law and you will then have unlimited liability for all claims.
Alternatively, if your terms and conditions are currently subject to a law other than English law and you wish to change the applicable law to English, you should have the agreement checked by an English lawyer, as you will probably be able to restrict your potential liabilities to a greater extent under English law.
In view of the above it may be worth reviewing your terms and conditions to ensure that they cover the above issues in order to limit your liability for potential claims.