Limitation of Liability Clause in UK Contracts: What It Means & Example Wording

When to Include a Limitation of Liability Clause

• In every commercial contract to manage risk exposure — both parties benefit from certainty about their maximum potential liability
• In professional services agreements where the consequences of a mistake could far exceed the value of the contract
• In software and SaaS agreements where service failures could cause disproportionate downstream losses to the customer

Example Wording

This example wording is illustrative only. Customise it to your specific circumstances and consider seeking legal advice.

Is a Limitation of Liability Clause Enforceable in the UK?

Limitation of liability clauses are enforceable in the UK, subject to important statutory restrictions. Under UCTA 1977, liability for death or personal injury caused by negligence can never be excluded. Other exclusions and limitations are subject to a reasonableness test considering factors including the parties' bargaining power, whether the customer had an opportunity to negotiate, and the availability of insurance. The Consumer Rights Act 2015 imposes additional protections for consumers. Courts have upheld caps based on contract value or fees paid as reasonable in many cases.

Common Mistakes

• Attempting to exclude liability for death or personal injury caused by negligence — this is void under UCTA section 2(1) and including such a clause can undermine the credibility of the entire contract
• Setting the liability cap too low relative to the contract value — a cap that is disproportionately low may fail the UCTA reasonableness test
• Failing to carve out specific types of loss from the overall cap — liability for IP infringement or data breaches is commonly excluded from the general cap and given a separate, higher limit