Define exclusions so they cannot be read down
Start with what is excluded. The trap, from British Sugar and Watford, is listing specific losses alongside indirect or consequential loss, which lets a court read the list as mere examples of consequential loss - leaving direct loss of profits recoverable. Avoid it by giving loss of profits its own limb with the words whether direct or indirect, then excluding any other indirect or consequential loss separately.
A workable structure excludes: loss of profits, revenue, or anticipated savings (whether direct or indirect); loss of business, contracts, or opportunities; loss or corruption of data; loss of goodwill or reputation; or any other indirect or consequential loss. The whether direct or indirect on the first limb is what makes it hold.
State the cap clearly - single or per claim
Make the cap unambiguous. For a single ceiling: the Supplier's total aggregate liability for all claims arising under this Agreement, whether in contract, tort, or otherwise, shall not exceed a stated amount or a percentage of the charges paid in the twelve months before the event giving rise to the first claim, whichever is greater. For per-claim caps, state each separate breach and add an overall aggregate ceiling so liability cannot stack without limit.
Avoid the Drax wording - total liability from the date the claim first arose - which invites the single-versus-multiple argument. Say which you mean.
Carve out the unexcludables, and decide on dishonest breach
Keep two kinds of carve-out separate. First, the mandatory ones the law will not let you limit: death or personal injury caused by negligence; fraud or fraudulent misrepresentation inducing the contract; the primary obligation to pay sums due; and any other liability that cannot be limited under applicable law. A clause that tries to cap these can fail more widely, so keep them expressly outside the cap. Second, the commercial carve-outs the parties may choose to keep outside the cap - commonly indemnities, deliberate breach or wilful misconduct, data and security breaches, IP infringement, and breach of confidentiality. These are negotiated allocations, not legal necessities, so decide each one deliberately.
Then make a deliberate choice on dishonest breach. After Innovate, if you want the cap to apply even to dishonest performance, use howsoever arising and carve out only fraudulent misrepresentation (fraud in the inducement). If you want dishonest breach uncapped, carve out fraud, fraudulent misrepresentation, or dishonest breach.
Make it reasonable, and keep proof
A clear clause still has to pass UCTA reasonableness in a business contract. Keep the cap proportionate to the fees and risk; leave the other side a meaningful remedy; prefer mutual caps; and consider who can insure the risk. Crucially, keep contemporaneous evidence that the clause was negotiated - emails showing the counterparty's lawyer proposed changes carry far more weight than a recital asserting negotiation.
Resist the temptation to over-engineer: long commercial-rationale schedules and heavy bold or coloured emphasis are not market standard and can suggest you knew the term was onerous. Clear language plus a real negotiation trail is what works.
Run the pre-signature checklist
Before signing, work through five questions. Is our cap actually a cap - a single aggregate ceiling, with a sensible calculation and no stacking? What are we actually excluding - do the exclusions cover the losses we would really suffer, and are direct losses caught where needed? Have we left ourselves a meaningful remedy? Will the clause pass UCTA reasonableness? And what about fraud and dishonesty - does the cap apply to deliberate breaches, and are we comfortable with that?
The discipline is the same throughout: liability provisions are not negotiating theatre. They decide, with precision, what you recover when things go wrong - so the time to get them right is before signature, not after the loss exceeds a cap you did not realise you had agreed.
Use at the desk
Practical checklist
- Give loss of profits its own exclusion limb with whether direct or indirect, not as an example of consequential loss.
- State the cap as single aggregate or per-claim explicitly, and avoid from the date the claim first arose.
- Carve out (not cap) the mandatory items - death or personal injury, fraud in inducement, and payment debts - then decide separately on commercial carve-outs like indemnities, data, IP, and confidentiality.
- Decide deliberately whether the cap covers dishonest breach (howsoever arising plus a deceit-only carve-out).
- Keep the cap proportionate, leave a meaningful remedy, and prefer mutual caps for UCTA reasonableness.
- Keep contemporaneous evidence of negotiation, and run the five-question pre-signature check before signing.
This guide is informational only and is not legal advice. It does not replace advice from licensed counsel on the facts of a specific transaction.
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