Pactora Clause Guide
Limitation of Liability
A limitation of liability clause caps how much one party can owe the other if something goes wrong.
This guide was written by Sneha Ganapavarapu, a qualified lawyer with experience in commercial contracts across technology, IP, and energy sectors. All legal sources are linked. This is general legal information, not legal advice. Always consult a qualified solicitor before signing any contract that matters to your business.
Plain English
What it is
A limitation of liability clause caps how much one party can owe the other if something goes wrong. It sets a ceiling on damages so neither side faces unlimited financial exposure from a single contract.
For UK freelancers & small businesses
What reasonable looks like
For a UK freelancer or small business the cap is typically set at the total value of the contract or the fees paid in the preceding 12 months.
Both parties are subject to the same cap.
Personal injury and death are always excluded from the cap.
Fraud is always excluded.
Watch out for
Red flags
One-sided cap that only limits the other party's liability but not yours.
Cap set at a nominal amount like £100 or £1,000 on a £50,000 contract.
No cap at all — unlimited liability on either side.
Exclusions that carve out too much from your own protection.
England & Wales
Market standard UK position
Mutual cap at contract value.
Standard exclusions for death, personal injury, fraud, and wilful misconduct.
Consequential loss excluded on both sides.
Other jurisdictions
How this differs outside England & Wales
The guide above reflects England & Wales law and market practice. If your contract is governed by another jurisdiction, the following differences may apply.
Germany (BGB)
Under § 276 BGB, liability for wilful misconduct cannot be excluded. Standard-term (AGB) caps on consequential loss may be void under § 307 BGB if they unreasonably disadvantage the other party. Individually negotiated caps have more flexibility.
France (Code civil)
Article 1231-3 of the Civil Code restricts exclusion of foreseeable loss caused by a party's own negligence. Caps must not be manifestly disproportionate to the obligation breached. French courts have struck down nominal caps in significant commercial relationships.
India (Indian Contract Act 1872)
Section 73 ICA allows recovery of reasonable damages. B2B liability caps are generally enforceable but Indian courts may re-examine caps they consider unconscionable. Cross-border enforcement requires a separate reciprocal-enforcement process — there is no automatic recognition of UK judgments in India.
Scotland
UCTA 1977 and the same reasonableness test (s.11) apply in Scotland. Outcomes for commercial B2B contracts are broadly the same as England & Wales.
Legal advice triggers
Ask your lawyer if…
The cap is lower than the contract value.
The cap is one-sided.
There is no cap at all.
References
Legal sources
Unfair Contract Terms Act 1977 — governs reasonableness of limitation clauses in B2B contracts. Section 11 sets the reasonableness test.
Consumer Rights Act 2015 — applies where one party is a consumer. Certain exclusions are void.
Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317 — leading Court of Appeal case on reasonableness of limitation clauses between commercial parties.
Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 — House of Lords authority on exclusion clauses surviving fundamental breach.
Read more
Further reading
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