One of the hardest items in a contract to get right is any limit on your liability. There are two significant reasons for this: firstly, they are interpreted strictly i.e. the court will only allow you to rely on a limit if it is crystal clear. Secondly, under legislation you can only rely on a limit if it is reasonable.
Reasonable is tricky to be sure about in advance – like guessing the length of a piece of string without seeing it!
However, when deciding whether a limit is reasonable the court will review if you provided any alternatives to that limit. So was the contract negotiation a case of ‘take it or leave it’ or ‘choose A or B’?
Let me give you an example (from Trebor v ADT) from a contract for the supply of a fire-suppression system.
Choose A or B
When writing your contract, you could develop a set of standard terms and second-guess the sorts of projects for which it will be used. Alternatively, you could negotiate and write every contract as distinct, but that would be very time-consuming. Let’s assume that there is an element of your contract that is standard to make it easier to do business.
In this case, you have to decide on a limit on your liability which applies and is reasonable in all circumstances … an impossible task. Instead you could provide a framework for agreeing a specific limit as well as an option for your client to increase your proposed limit:
“We limit the amount of our liability and the most we will be prepared to pay for any loss will be £[ ].
If you would like to increase this limit, you will have to pay an extra charge so we can arrange the appropriate insurance cover for the extra liability, the level of which has to be agreed.”
We all like choices – who wants to visit an ice-cream van with only one lolly? Choices make terms in your contract easier to agree and your limits more likely to be reasonable.
Relevant Act: Unfair Contract Terms Act 1977.