Can I Exclude Liability in a Contract in England?

As a business entering into commercial contracts, you may want to exclude liability for certain events or actions. You may also include a limitation clause in your contract to ‘cap’ your liability. This can be a good way of managing risk in your contract. In general, exclusions can help your business undertake new ventures without fear of court proceedings against you. However, not all exclusion and liability clauses will be valid. This article will explain some of the instances in which you can and cannot use exclusion clauses. It will also explore what a court might expect of you to uphold your exclusion clauses. 

What is Excluding Liability?

Exclusion of liability is a contractual term stating you will not be liable to pay compensation if a certain event occurs. You usually need to make contract terms with clear wording. If a term is particularly onerous, you should bring this to the other party’s attention. If not, you may not be able to enforce it. Provided that both parties freely agree to the contract, an exclusion clause will usually be binding. In fact, exclusion clauses are common in certain types of contracts, including consumer contracts and commercial contracts. 

A limit on liability works in a similar way, but instead of completely excluding your liability, it instead places a cap on the amount of compensation that you could be due to pay. 

When Can I Not Exclude Liability?

While exclusion clauses are generally valid, there are some instances where you will not be able to exclude liability. For example, you cannot exclude liability for:

• death or personal injury as a result of your own negligence, as per the Unfair Contract Terms Act (UCTA);
• damages as a result of your own fraud or dishonesty;
• faulty items, as per the Consumer Rights Act 2015; and
• all of your contractual duties. In other words, the other party must be able to sue you for something.

While you cannot completely exclude liability for certain things, you can cap your liability if you use clear wording.

Capping Your Liability

It is usually a good idea to include a term in your contract which places a cap on your liability to the other person. Often, parties will negotiate the amount of money that you are accepting liability for. If you are including a cap on financial loss that you are liable for, then you should also make sure that you state:

• the exact value of the limit of your liability, and if you do not agree on a limit, then the exact way in which the limit can be determined; and
• what the cap applies for, for example, whether it applies for certain types of breach of contract, or for all of your contractual obligations.

In addition, commercial contracts often also include a ‘time cap’, which requires that a claim is brought within a certain timeframe. If it is not, then liability is excluded for that breach.

How Can I Make My Exclusion Clause Valid? 

If your case goes to court, a judge might have to decide whether your exclusion clause was properly incorporated. For the clause to be properly incorporated into a contract, there are a number of requirements. 

First, you should not have made the other party enter the contract through a misrepresentation. Misrepresentation is when you misconstrue an important fact about the contract. This fact must cause the other person to enter into the contract to constitute misrepresentation. 

Second, the other party must have had an understanding of the document that they had signed. If the other party had received legal advice, then a court will usually assume that they were properly informed before entering into the contract.

Third, you must have taken reasonable care in taking steps to bring the exclusion clause to the other person’s attention. If the term is more onerous (for example, if it is a very large limit on liability), then ‘reasonable care’ will be to a different standard. 

Finally, the exclusion clause must be clear and unambiguous. If there is any ambiguity in the wording of a contract term, then a court is more likely to interpret it against the person who drafted the clause.

Key Takeaways

If you are entering into business contracts or consumer contracts frequently, it can be valuable to add exclusion clauses alongside the standard terms of your contract. An exclusion clause will limit a party’s liability in the case the other party sues them. They can also help you manage risk when entering into agreements. 

You will not be able to exclude liability for certain things, such as death or personal injury arising out of your own negligence, or for your own fraud or dishonesty. It is also important that you bring exclusion clauses to the other party’s attention. This is because the other party may raise your actions before entering into a contract during a dispute.

If you wish to include exclusion clauses in your contracts, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today at 0808 196 8584 or visit our membership page.

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