Liability caps have been around for a long time but are they the hot topic for 2014?
Are liability caps the hot topic for the new year? They have been around for a long time but cases such as Sabic and AMEC Group vs Secretary of State for Defence do make us pause to reconsider whether standard drafting for these clauses, including pain/gain share provisions actually work.
The most common liability cap is a financial cap covering all matters with specific “carve outs”.
The other option is an inclusive approach where what one party is liable for is spelt out. To make sense of these clauses they need to be read with other contract provisions, not in isolation.
How does the drafting ensure the caps apply to all eventualities? It didn’t in the Sabic case
They may take on a very different meaning when that is done.
How does the drafting ensure the caps apply to all eventualities? It didn’t in the Sabic case.
In addition there remains general confusion between caps on liability and the limit of professional indemnity (PI) cover. A specified PI limit does not cap liability unless it specifically says so, although in practical terms it might be all that is recoverable.
The aim of drafting these clauses is to achieve certainty for both parties by limiting their exposure. Do these clauses achieve that or have we all become a bit too smart for our own good?
Lindy Patterson QC is a partner and solicitor advocate at Dundas & Wilson LLP