Limiting liability: drafting and negotiating

by Practical Law Commercial

A practice note that explains the legal and commercial issues involved in negotiating and drafting limits on liability in a business-to-business contract. This practice note discusses the commercial needs and risks that drive a party's negotiating position and suggests a practical approach to drafting an effective exclusion or limitation clause in a business-to-business contract. It provides detailed guidance on techniques for drafting enforceable clauses, including setting liability caps and strategies to defend against legal challenges under legislation such as the Unfair Contract Terms Act 1977 (UCTA). This Practice Note explores common mistakes and misunderstandings regarding the interaction between a limitation on liability and indemnities or a duty to insure against losses. It examines the perspectives of both suppliers and customers, offering insights into managing risk through contractual and commercial solutions beyond simple limitation clauses, and addresses why a total exclusion of liability is often unachievable and ill-advised.