Limiting liability: interpretation

by Practical Law Commercial

A practice note that explains how courts interpret clauses limiting liability in contracts, under English law. This note discusses the significant risk of strict interpretation, where courts may narrow the scope of a limitation clause to achieve a just outcome, potentially undermining the drafter's original intent. It highlights critical principles of interpretation, including the requirement for clear words to exclude valuable rights or specific liabilities such as negligence. It discusses the established but counter-intuitive legal meaning of "indirect and consequential loss," a common pitfall for contracting parties. This practice note also considers the potential meanings of many other common words and phrases used in limitation clauses, from "deliberate default" to "loss of profits." It provides guidance on the factors that may reduce the risk of a clause being interpreted restrictively, helping drafters to better reflect the parties' intended allocation of risk.