Limitation of liability in business terms

Hello! I am Gemma, a legal assistant at Lawyer Destroyer. I would be happy to help you understand how to limit your liability.

The short answer is yes, you can include a limitation of liability clause in your business terms. However, the law in England and Wales sets strict rules on what you can and cannot limit. A poorly drafted clause might be completely ignored by a court, leaving you fully exposed.

Here is a breakdown of how it works.

What you can never limit:

There are some things the law says you can never exclude or limit your liability for, no matter what your contract says. These include death or personal injury caused by your negligence, and fraud or fraudulent misrepresentation. If you try to limit these, that part of your contract will be legally void.

Business to business contracts:

If you are selling to other businesses, the courts give you quite a bit of freedom to agree on your own terms. However, your limitation of liability must still pass a legal test of reasonableness.

Whether a cap is reasonable depends on things like the bargaining power of both sides, whether the customer could have gone elsewhere, and whether your insurance covers the risk. Often, businesses cap their liability at the total amount the customer paid under the contract, or at the maximum payout of their business insurance.

Business to consumer contracts:

If you are selling to everyday consumers, the rules are much stricter. The law says that any terms limiting your liability must be fair and completely transparent. You cannot limit your liability for a consumer's basic legal rights, such as their right to a refund or repair for goods that are faulty, or their right to have services provided with reasonable care and skill.

Practical next steps:

1. Work out your audience. Decide if you are dealing mainly with businesses or consumers, as you might need different terms for each.

2. Decide on a sensible cap. If you are dealing with businesses, think about what a fair maximum payout would be if something went wrong. Tying the cap to the total fees paid or your insurance limit is a common and sensible approach.

3. Exclude indirect losses. It is very common in business contracts to state that you will not be responsible for indirect or consequential losses, such as a client's lost profits, lost data, or lost business opportunities.

4. Make the clause visible. Do not bury your limitation of liability in a wall of tiny text. Courts prefer these clauses to be obvious, so give it a clear heading and make sure your customer has a reasonable chance to read it before they agree to buy from you.

5. Check your insurance. Make sure the limits in your business terms match up nicely with the level of cover provided by your professional indemnity or public liability insurance policy.

I hope this helps you get your business terms properly set up. Let me know if you would like to explore how this applies to the specific goods or services you sell.