Limitation of Liability Clauses
It is necessary to understand what is a liability clause. The Limitation of Liability Clauses or simply put, a liability clause, can be defined as a disclaimer in any agreement. This disclaimer specifies the conditions wherein one party can be held liable for any property loss or property damage. It also mentions the limits and the intensity of the damage that the party can claim in certain circumstances.
Legal Liability Can be Caused Due To:
- A breach of contract by either of the contracting parties, where they fail to execute their legal and contractual obligations.
- A party’s negligence to conduct a duty. For example, a car manufacturer designs a defected car resulting in an accident.
- Misinterpreting a statement of facts in the agreement resulting in the conclusion of the contract. For example, with regards to the quality of goods.
- Violation of IP rights i.e. if a party violates the contracting party’s property rights such as copyrights, design rights or patent rights.
Example of Limitation of Liability Clauses
The example of one such limitation of liability Clauses is that if a website is suffering loss because of relying on the information or data given and provided on the website. The limitation of liability clause in the website’s disclaimer and terms and conditions could restrict the liability of the website’s owner. This means that the user can regain only up to a certain specified amount of his or her loss.
Information Technology Sector
In the information technology sector, the contracts between any two parties are usually written in a form of the limits of liability clauses. This may include software license agreements as well as service level agreements. For example, let us say a company purchases the rights to software from a party and it does not work, then the company suffers damages. But the limitation of liability clause would curb the company from reimbursing its losses.
Therefore, here the limitation of liability restricts the amount of damage recovery of one party from another. Put in simple words, the limitation of liability clauses helps the two parties restrict or terminate any type of damage, be it direct, resultant, auxiliary, or indirect in the case of a breach of contract between the two parties. The liability clauses also commonly include a limit on the total number of damages recovered from any party. For example, before making any payment, the vendor has absolutely no liability. It curbs the liability caused by one party and reduces the risk of a claim by the other party.
In the transactions between two parties in an I.T. sector. It is typically common to exclude some categories of damages from the limitation of liability clause. For example, if due to a vendor’s breach of the contract’s certain provisions such as confidentiality, your company suffers damages, probably irreparable damages, then the limitation of liability should typically and most righteously not be applicable. This means that your company should be able to recover and recoup the complete amount of damages that it suffered due to the vendor’s breach.
Conclusion
It is extremely important to read and consider the entire contract along with its disclaimers very carefully. The limitations of the liability clause usually tend to favor the drafting party. The party that drafted the agreement (typically vendors) tends to bend the disclaimer more in their favor.
