Limitation of Liability - Consequentials
Contract Type:
Generic Contract
Jurisdiction:
Neither party shall be liable to the other for any indirect or consequential loss or damage, including loss of profits, revenue, business, contracts or anticipated savings, arising out of or in connection with this Agreement, whether in contract, tort (including negligence), breach of statutory duty or otherwise.
Explanation
Here is a plain English explanation of the Limitation of Liability - Consequentials clause:
- This clause prevents either party from being liable to the other for indirect or consequential losses.
- Indirect losses refer to those that are a knock-on effect of the main loss.
- Consequential losses are secondary losses that follow from the initial loss.
- Examples given include loss of profits, revenue, business, contracts or expected savings.
- The exclusions apply regardless of whether liability arises from breach of contract, negligence, statutory breach or other causes.
- Basically, neither party has to compensate the other for secondary or indirect losses flowing from any contract breaches or damages.
- Liability is limited to direct and primary losses only.
- The purpose is to prevent claims for extensive speculative damages like lost future profits.
- It provides certainty on the scope of liability for both parties.
The limitation of liability for consequential losses clause emerged in English contract law during the industrial revolution of the late 18th and early 19th centuries.
As modern business relations became more complex, the courts saw an increase in claims for indirect losses like lost profits from breach of contract.
In response, English lawyers drafted specialized clauses to limit liability only to direct damages from breach. By the 1840s, these "consequential loss waivers" were an established feature in commercial contracts, as affirmed by court rulings.
The clauses proliferated through the 19th century as English courts upheld their validity, provided they were not unconscionable. The limitations became a key risk management tool for insurers as well.
In the 20th century, English law continued to enforce consequential loss waivers while refining their application through legislation like the Unfair Contract Terms Act 1977. This prevented abusive waivers.
Today, English law permits parties to reasonably limit consequential liability through clear contract language. The clauses evolved from the need to provide certainty on risks for industrial era commerce and remain an important means of commercial risk allocation.
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