Source: https://www.dwf.law/news-events/legal-updates/2014/10/limiting-liability-part-2-what-can-be-excluded/
Timestamp: 2017-07-25 20:43:52
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Limiting Liability part 2: What can be excluded? | DWF.LAW HoneyPot
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Limiting Liability part 2: What can be excluded?
This article looks at exclusion clauses and how to ensure that they are effective and enforceable. Some exclusion clauses seek to exclude liability altogether whilst others seek to exclude certain specific heads of loss, such as loss of profit or loss of business. A clause that seeks to exclude liability altogether is likely to be viewed as unreasonable and therefore unenforceable. It is therefore vital when negotiating such clauses to know what is important to your business and to take a sensible and practical approach which protects those interests without going too far.
Direct loss: Direct loss is a loss arising naturally, that is, according to the usual course of things, from the breach of contract, and is therefore reasonable and foreseeable. For example, if you contracted to provide a customer a system to a particular specification, but failed to do so, the costs the customer incurred buying a replacement system would be considered a direct loss. Indirect loss: Indirect losses are those which arise from a special circumstance of the arrangement and which were reasonably supposed to be in the contemplation of the parties at the time they made the contract as a probable result of the breach. So, in the same scenario, if your customer had told you that they needed the system to be fully operational by May in order to fulfil a contract with a key client but they lost that contract because you failed to supply a compliant system, the value of the lost contract might be considered an indirect loss.
The potential costs could dwarf any margin the supplier could achieve under the contract. There is a common misconception that such financial losses will always be indirect or “consequential” losses. The courts, however, have shown willingness to interpret direct loss quite widely Drafting tip: when negotiating any exclusion clause make sure that you think about the types of losses which you wish to exclude and to clearly list these out. Any ambiguity is likely to be construed against the party seeking to rely on the clause.
This article is part of a series on limiting liability. In part 1 we focussed on caps on liability in commercial contracts and provided hints and tips for drafting and negotiating these clauses. Please read Limiting Liability Part 1: How long is a piece of string? for more information. Authors: Sophie McKibbin & Catherine Harrison This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.
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Limiting liability part 1: How long is a piece of string? In this first article of a three part series we will be focusing on caps on liability in commercial contracts and providing hints and tips for...