The Case for Caution in the Drafting and Interpretation of Limitation or Exclusion of Liability Clauses in Contracts and Legislations

Abstract

The limitation or exclusion of liability clause is a key feature in many agreements. It serves to mitigate the risk exposure of the defaulting party and encourages parties to enter into agreements as it enables the Contractors to quote much lower prices. Despite the relevance and the commercial necessity for the limitation or exclusion of liability, it may seem that sometimes-introducing caps or exemptions on liability may have the unintended effect of absolving the defaulting party from their responsibility under the agreement, beyond what may have been reasonably intended by the parties. This can lead to ambiguity that can potentially become the subject of intense disputes. This paper will examine a few cases where the limitation or exclusion of liability clause may have been overreaching and may have had the effect of unwittingly absolving the erring party. It offers suggestions on how this possible shortcoming of limitation of liability provisions can be addressed and possibly overcome, to enable the objectives of a limitation of liability clause to be achieved in agreements and legislation so that the intent of the parties is properly reflected.