Drafting Exclusion And Limitation Of Liability Clauses (Video)

• Published date: 31 October 2022
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Contracts and Commercial Law, Trials & Appeals & Compensation
• Law Firm: Gowling WLG
• Author: Mr David Lowe and Sean Adams

David Lowe and Sean Adams take a look at the drafting of exclusion and limitation of liability clauses, including a consideration of recent case law in this area. These clauses are always important, but never more so than in a time of uncertainty. Properly drafted exclusion and limitation of liability clauses can create clarity for the parties in relation to the allocation of risk between them. Conversely, a failure to adequately understand the consequences of that drafting can lead to parties finding out that there are bars to recovery when issues arise.

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Transcript

David Lowe: Hi everyone and welcome to our webinar about limitation and exclusion clauses. I am David Lowe I am the partner who leads our commercial contracts team and I spend my whole time negotiating and drafting limitation exclusion clauses.

Sean Adams: And I am Sean Adams, I am a partner in our commercial litigation team and I spend my time helping people fight over limitation and exclusion clauses and seeing how they apply in practice when parties come to rely on them.

David: So Sean is here to keep me honest because of course I can say whatever I like because I don't have to deal with when they go wrong, and so Sean is here to remind us that when it goes wrong it really does matter what is in your limitation and exclusion clause.

Now the reason why we are having a focus on this today is because there has been an important court of appeal case on limitation exclusion clauses in the summer of 2022, and we thought it would be useful to step back from that case and look at limitation and liability clauses more generally to understand the context of that case.

To do that we thought it would be helpful to go through a template clause and so you will find a link on our website to that template clause that we are going to use today to discuss and go through.

Sean: So assuming you have all been able to find that clause, which is always a good start, let's start right at the beginning.

So David you are the person that drafts these things, when you start putting pen to paper where do you start first, what is the first thing that goes in there?

David: Well, I can almost, sort of, do it with my eyes closed which is nothing in this agreement excludes or limits a parties liability for death or personal injury arising from negligence and then something about fraud and then something about fraudulent misrepresentation.

That is often the first clause that you will find in any limitation liability clause and the reason it is there is well under UCTA the Unfair Contract Terms Act you cannot in a contract exclude or limit your liability for death or personal injury arising from negligence.

The courts have indicated very frequently that under public policy grounds you cannot exclude liability for your own fraud and there was a case that said if you didn't expressly mention fraudulent mis rep then your entire agreement clause might fall down so it is routine to mention that you don't exclude or limit the liability for that.

Sean: That all makes sense David and if you can draft that with your eyes closed I think that probably suggests it falls into the category of being so obvious that the question could be asked does it even need to be there at all? Do you need to spend the first third of a page putting in that clause when the law does the job for you?

David: Yes it's a good comment and we would all rather have less words in our contracts. There is a school of thought that says, as you said Sean, that if the law already says you can't exclude liability why do I need to write that all down again. It is just there in the fabric, in the background, we don't need to say it again.

It would be a bold lawyer to decide not to bother putting that clause in because we don't quite know what happens if you don't put it in and none of us really want...