Limitation of liability clauses are a common feature of commercial contracts, used to limit the amount of damages that can be recovered in the event of a breach. Such clauses are particularly important for businesses, who face significant financial risk when entering into contracts with suppliers or customers. In recent years, there have been several significant developments in UK case law regarding the enforceability of limitation of liability clauses in commercial contracts, both in business-to-business (B2B) and business-to-consumer (B2C) contexts.

Business-to-Business Contracts

In B2B contracts, the parties are generally considered to have equal bargaining power, and the courts are less likely to intervene to protect one party over the other. However, recent case law has shown that even in the context of B2B contracts, there are limits to the enforceability of limitation of liability clauses.

In the case of Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371, the Court of Appeal held that a clause limiting liability to the purchase price of the goods supplied was unenforceable. The court found that the clause was unreasonable and did not reflect the parties' intentions at the time of entering into the contract. The court noted that the parties had negotiated on the basis that the goods supplied would be fit for purpose, and that a liability cap would not have been acceptable to the buyer in those circumstances.

Similarly, in the case of CIS General Insurance Ltd v IBM United Kingdom Ltd [2020] EWCA Civ 1708, the Court of Appeal held that a limitation of liability clause was unenforceable because it was not reasonable in the context of the contract. The clause in question sought to limit the amount of damages payable in respect of a data loss incident, but the court found that the clause was not clear and did not take into account the nature of the data involved or the potential losses that could result from its loss.

Business-to-Consumer Contracts

In B2C contracts, the law is more protective of consumers, who are typically considered to have less bargaining power than businesses. Recent case law has shown that the courts are willing to strike down limitation of liability clauses that are found to be unfair to consumers.

In the case of Parking Eye Ltd v Beavis [2015] UKSC 67, the Supreme Court held that a penalty clause in a parking contract was unenforceable, as it was not a genuine pre-estimate of the loss that the company would suffer as a result of a breach of contract. The court held that the clause was unfair to consumers and amounted to an unfair term under the Unfair Terms in Consumer Contracts Regulations 1999.

Similarly, in the case of Andrews v SGL Renewables Ltd [2021] EWCA Civ 431, the Court of Appeal held that a limitation of liability clause was unenforceable because it was unfair to the consumer. The clause in question sought to limit the amount of damages payable in respect of a faulty solar panel installation, but the court found that the clause was not clear and did not reflect the parties' intentions at the time of entering into the contract.

Conclusion

In conclusion, recent case law in the UK has shown that the courts are increasingly willing to scrutinize limitation of liability clauses in commercial contracts, both in B2B and B2C contexts. While such clauses remain an important tool for managing risk in commercial relationships, businesses should be careful to ensure that such clauses are reasonable, clear, and reflect the parties' intentions at the time of entering into the contract. If you have any questions or concerns regarding the enforceability of limitation of liability clauses in your commercial contracts, it is recommended that you seek the advice of a legal professional who can provide guidance on the specific needs of your business.

It is also worth noting that the Consumer Rights Act 2015, which came into force on 1 October 2015, has introduced new provisions that affect limitation of liability clauses in B2C contracts. Under the Act, any term in a consumer contract that seeks to limit or exclude liability for death or personal injury resulting from negligence will be considered unfair and therefore unenforceable. This means that businesses need to be careful when drafting limitation of liability clauses in B2C contracts to ensure that they comply with the new provisions.