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Limitation of liability

A constant source of friction in commercial contracts, and particularly in computer contracts is the desire of the supplier to cap his liability, and for the customer to ensure that the supplier's actions do not leave him open to irrecoverable losses. There has been much recent litigation on this point and the several points which should be considered in in any such clause.

First, a clause limiting liability which is imposed without due discussion and negotiation by the supplier may come to be unenforceable under the Unfair Contract Terms Act. Such a clause will be interpreted against the supplier, and the supplier must be careful. There are several ways in which supplier may however improve the position without great difficulty.

First, he should enquire of his own insurers what premiums would be applicable for different levels of cover. There may be ranges of cover which he can afford to purchase and which will provide him with sufficient insurance for loss recovery. Next, he can discuss with any customer any particular situations which might lead to exposure to greater risks. These cannot be predicted safely, but they can sometimes be spotted in advance. He can then offer to purchase increased cover, and to amend the contract accordingly at the customer's request.

The customer can be asked to notify the supplier of any particular situations which might lead to increased liability. For example, the customer may intend to use the product in the situation not anticipated by the supplier and which is particularly safety critical. It is reasonable for the supplier to ask the customer to disclose any such applications known to the buyer.

Limitations of liability drafted to allow for these factors will therefore have several elements which will make them, or are more likely to make them, enforceable at law. First, the supplier is indicating flexibility. Second he has considered the appropriate level of insurance, and he has placed upon the customer the responsibility to notify him of the amounts at issue.

Important: Please note that our law-bytes are retained for archival purposes only. The law changes, and these notes are often, now, out of date. You must take direct advice on your own personal situation and the law as it currently stands.
All information on this site is in general and summary form only. The content of any page on this site may be out of date and or incomplete, and you should not not rely directly upon it. Take direct professional legal advice which reflects your own particular situation.
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18 October 2013 http://www.swarb.co.uk/lawb/cpuliabilitylimitation.shtml 419 18 October 2013