How to Exclude Liability in B2B Contracts

Hello and welcome to this data law. Webinar on hat tricks. Food liability in BTB contracts will be looking in the next 30 minutes on INC Direct Indirect Consequential loss the categories on the types in which you can use exclusion clause. We look at the latest approach to interpretation of exclusion clauses. Severance, Dr Triggers. Well, look at recent decisions on reasonableness. Under the Unfair Contract Terms Act, Andi finally caps on looking at the relationship between the exclusion doors on warranties, indemnities. If we do all that in 30 minutes, we'll be doing really well, Thanks. So here we get festival if you can to use an exclusion clause, make sure that it's incorporated. We had previously all of those car park cases where you've got in the car park barrier went down and the court said, Well, you know, if it wasn't flashing up in front of you, it's not excluded. We have moved on from that. In the case I've chosen to tell you about is the Allen case, where, very helpfully, the court, the high court rewrote the principle in Chitty on contracts by saying, Look, if you get a document and it's from a service provider, and it's in writing or printed material. Then it's bound to contain an exclusion clause because that's what small print contracts do. They contain exclusions and disclaimers. So if you know that there are words on that contract and you haven't actually read the right bit, you are still bound. You don't have to flag it up or put it in bold, etcetera. So double check its being incorporated. I'm particularly concerned back contracts by conduct, performance contracts, battle of forms. All of those represents issues when it comes to INC. So the second thing we're gonna think about is whether or not we are dealing with types of loss, which could be described as special, indirect, consequential, direct in the case that we get back to is the old standard of partly in fact today not gonna do one of these weapons without have him back. Sindel splits into two Hadley one and had to. It didn't at the time, but I have superimposed square brackets to give you a clear view of what we mean by direct and indirect loss. So, basically Hadley one is direct. Lawson happy to in the reasonable contemplation of the parties is everything else indirect, consequential, special All Hadley to So it may be before we start that the loss that they're claiming against you as the service private providers supplier is beyond? Hardly. In other words, it's not claim mobile in contract, all because it's neither arising, usually in the ordinary course of things. Nor is it or was it in the reasonable contemplation of the parties? Neither. So you don't need the exclusion clause because it's beyond remoteness, however more usefully when we come to think about using such terms in the exclusion clause, which parts of Los are we actually targeting In direct loss? Ask. I've chosen GB gas, which is the case which showed that direct loss was was. Quote could be quite a lot now and GB gas Accenture try to put in the gas billing system failed miserably. Andan. So doing caused all of that loss which is set out on the slide. They have to pay X Gracia compensation to customers. I mean, they didn't have to do it, obviously because it was x kreisher, but they did it to stop people from going off to eat yet because they're giving them the wrong gas bill because of the software. Gas distribution was increased. Additional stuff were there to try and sort out the problems that they had to be paid for. In fact, they had to write off from build gas, and then they had to put a better system in at significantly greater expense, direct or indirect. Well, I think most of those following the ordinary course Step nine I mean, you would expect to have to buy new software purchase people's time to sort it out right off un build. The one that caused the difficulty is the one in red because it's a bill that doesn't follow in the ordinary course. That's because you paid it on the next Gracia basis that the court said no, it's direct loss. It's direct because if they don't do it, they will lose that market share. So it does follow in that market, which is an oligopoly stick market where you have caught competing pressures. They do really have to pay it, and therefore it's direct loss are in direct loss. I've chosen l've a night and a Mech day make. It's a really good example of loss that is actually beyond recoverable because this was a case where they had to prepare a piece of land for sale. Well, they did get around to it dimensionally, but not quickly enough. Know time is of the essence in the contract. By the time they got around to it, they lost a purchaser who is going to pay more than the market value. Can you see why direct loss was not relevant? If I'm going to pay more than the market value, then it's not in the usual course. It's extraordinary. So then the question waas was it in the reasonable contemplation of the parties? No, because you never told us about it. How could it be in our contemplation? We didn't tell us that you had a purchaser waiting on Time's of the essence. So in fact, it failed entirely. The court discussed whether or not it was direct or indirect, using the Hadley to reasonable contemplation of the parties to can note indirect, special consequential. One thing that I quite like about using indirect loss is that if you're in a supply chain and you're kind of down at the bottom and you sell it to somebody who sells it to somebody who sells it to somebody finally retails it, then the Allen case, which we looked up for the rewrite on Chitty, is a useful example of how indirect loss can often be on the way in which you can protect or exclude liability. This was a scaffold in case, and they were right at the bottom of the chain. On, as you can see by my arrows Allen, who provided the scaffolding brace to a STD who, providing the scaffolding solution to Bembridge, who were supporting a boat on Finally, to Mr Clayton Hills, who suffered a nasty accident as a result of the failure of the scaffolding brace. By the time it got to the sort of top of the chain, because there were so many people here, it's indirect loss. So even though Alan provided a manufacturing component which failed, they were still able to exclude their loss because it's very easy to exclude indirect loss as a whole type of loss. The other thing, the court said, was, of course, it is cheap. What do you expect? You didn't pay enough money for it, said the exclusion is reasonable because of price. Now we've been looking at types of los direct and indirect and we've decided have one Hadley to or beyond hudley. So the point is, which type of loss represents most. Risk your organization I am or at risk from direct loss or from indirect notes, and you need to craft the exclusion floors. According that sounds very simple. Unfortunately, it's not. This is because a blanket exclusion of direct loss may no be reasonable under up to you can certainly get rid of indirect, special, consequential loss. But having a blanket exclusion of direct loss is likely to bring in the cavalry in terms of the Unfair Contract Terms Act. So if you're dealing with a situation where hardly one represents more of a risk, then we have to have on alternative system in place. If you think it's more likely to be indirect, special, consequential than your exclusion clause can contain a blanket exclusion of indirect loss. Special lost, consequential loss. No, in terms of consequential loss, I've chosen the new case of transition, which is a court of appeal case where consequential loss was defined in the contract. That always is an interesting way of doing things. You could define it then you know it's covered. This definition took us back to a general definition, a contract, nor so what does consequential loss? What I knew. You know that you know what Conference Hadley to loss, which is in the reasonable contemplation of the parties. We did that a few minutes ago. Here some of the elements of consequential loss covered in the clause that you can see on the slide, particularly in red, my shipping more suitable as direct lips. But the court said no. If you've defined it, we will not interfere You doesn't matter how you categorize it. If you've explained what you think you mean by consequential loss, we will step back and Dr does not apply. So defining it can be quite a good way of ensuring that it's covered by the exclusion clause. Now I put in a set of dominoes for you to look at. That's because the recent case of star Polaris picks up a bit of common from more pick in the Court of Appeal in translation when he said, Well, the English law regarding huddling back to the old drilling it needs reconsideration. What you are changing hardly and backs and Dale Are you mad? No. Well, I'm going to get a bit emotional at this point because we may have to wave goodbye to that old friend. What happened in Star Polaris and on the back of the court of Appeal in transition was that consequential losses received a new treatment. My clear advice to you is doing include consequential loss as a type of loss in your exclusion clause. It now means, as you can see, that you only interpret it in accordance with hardly two, if you've used hardly to Well, I haven't seen many contracts referring to have him back, Sindel. But you may have done actually what it means is cause and effect as a result, as a consequence, so focusing on the Domino's people which of those dominoes are consequential on which of those dominoes are not consequential Because if it means as a cause following as a consequence, there was any one of those dominoes. It is not consequential. And in the star Polaris, the event giving rise to the engine failure was would you, if you like, direct everything else most consequential. Miss it again. Everything else was consequential. Do you see what that has done to consequential it is hugely increased its meaning. That's perfectly OK. Suddenly, to we can get rid of that, we can exclude it. I love consequential. Consequential is my route forward. It's the main deal. Now I need to make sure that seeing this ship towards them all a less technical meaning I'm away. A commercial meaning to consequential is a massive step forward to increasing the girth. The scope Oh, the limitation of liability. Say you're gonna exclude more liability, provided you can describe this consecration described as consequential. If it is any other Domino van, the first domino which gives rise to it and everything else falls as a consequence, it has been big news. Watch that space is 30 days, so use consequential loss. Now let me show you the architecture off limitation, and I put it into three tables and effectively. What you do with limitation pools is used three ways off, excluding liability. Direct special indirect consequence like putting additional. You won't often see initial. It's used in subcontracts. Do you remember which one you cannot exclude without a problem? It's their off the types of loss can new see in your mind's eye. Where to put the cross direct. You can't exclude as a whole blanket type, direct loss. Good. Everything else and you sure, especially consequential, which we love should be put into the exclusion clause. So if you're send yeah, well, that's for great, Helen. But actually, I think I think I'm at risk of direct loss here. That's the thing that my organization is more worried about. When that sense you need to focus on your categories on your categories are different to your types. Compare them. They're more specific on your categories. Should be drafted. Unlike my table with a semi colon, drop a line in dent. New number semi colon Drop a line in dent. New number. It's very difficult. You can put him across the line if you like, but really as much of word processing, they need to be easily separable in case it's a bit like gambling. Sometimes you win. Sometimes you lose. I gather. So you specific categories. How did they fare under the unfair contract terms that will, we have no problem with categories. We have no probably fact, you know what? We don't even use having backs and Dale to decide whether their direct or indirect, we just look at a straight interpretation on the biggest error used in category drafting is that people do not wrap the drafting around the risk, don't take a precedent, have a miserable conversation on a worst case scenario basis with the client. What can possibly go wrong? I'll put it in the category. In the Scottish parent BP Exploration. They had a long list on the Court of Appeal in clear drafting forms. A fantastic forum for drafters, the Court of Appeal said. Is it is it loss of profit? Because they had to pay extra for achieving a gas supply to the platform? Is it lost? No, no, you tell me. Is it lost revenues? No, no, no is. It went through all of the categories and said, No, none of them fit. Now that's just a draft in question. It's not a reasonableness question. It's a simple contract interpretation. Nail it, put the risk into the category and finally bring up the rear with the cat. Now we're going to talk about caps a little bit later on, but you should recognize the tripartite approach to structuring an exclusion clause. Let's look at some mistakes. Let's laugh. Other people's dropped in shall way. Pendragon Wang, Can you see the deliberate mistake? Don't mix types and categories wearing shall not, in any event, be liable for any indirect, special, consequential howsoever arising brackets, including loss of anticipated profits or data is loss of profits direct or indirect? What we don't care is the vast answer, because it's a category. So we didn't care. But because it's tacked on us a parenthesis to indirect, special, consequential and it turned out to be a direct it didn't work. So what they should have done was have indirect, special, consequential fine, fine, super loving that semicolon Drop a line in that new number. Off we go again. Data semi co nonprofits Semi colon anticipated profits. Semi colon. Yep, Keep it'll separate. Absolute. I know people say, Can I have a contract on the back of one page? And you feel like saying, Well, no, not really. Not if you want it to be any use. So keep types and categories separate. It's a little bit of word processing, isn't it? Now, the next, when we're going to look at it. Something called a firewall on a firewall is another example off structuring the clause so that you have bite size chunks. Market study lens Lee I illustrated in red the awes Endsley will not be liable for any indirect or consequential loss of all, so they're hoping for a destructive interpretation, but they don't get it. Unfortunately, loss of profit was outside the, uh, escape of the clause because, unfortunately, loss of properties direct on Endsley will not be liable for any indirect or until the court said when you started. The club was with indirect, consequential loss of profit and unfortunately, look. Loss of property is not indirect, it's direct. So it fails because it's grouped into a sub clause dealing with a different type of loss. How awful is that? So finals are important punctuation. And the reason I say that is that the authority for that is Regis on that cot because in that case, the court and it was beautifully structured. 1234 etcetera. The court took out one subsection and said, Well, that's a little bit O. T. T. But left to the cap, which is subsection full. So one subsection was unreasonable. It could be a severed to leave the remaining subsections very useful. Case on structuring the drafting. Remember, with severance, we can never write something in. We take it to the next grammatical point. So it's the next point of punctuation. It's a really good reverse engineering test to look at your clothes in terms of severance, because how far does the scalpel go before it reaches? Punctuation is a good indicator off how to sever a close. So let's have a look at some categories. I put a few let hundreds of categories are that remember. It's just a question of interpretation. We don't do have them backs that we don't care if you just keep them in glorious isolation. I think you've nailed it in your drafting or you haven't so loss of profits, business goodwill, savings contracts, good news, corrupt You could sink whatever you like. There's no limit to the possibilities that press the return key when drafting categories. Let's look at some interpretation points. I'm very pleased to be able to tell you that in the last couple of years we've had two two cases which have helped us with contract interpretation. The 1st 1 is Arnold in Britain, which is a case in 2015 which I was. The reverse is the wrong sealed case because it does. It does what it says on the tin on. This was the case where the contact was very poorly ways it was draconian. It was a bad deal for the licence holders of the holiday chalets. And although commercial common sense said, Look, this is a huge amount of money they're paying for Holiday Chalet the courts as well, but they're signed it and it's clear. So it took us back to a textual interpretation on the other case, serious. That wouldn't show short term case. Which is that indemnity case on again? A textual interpretation turning incidently on punctuation on the course. We'll know if you draft it. We can see from literal point of view. Then, however, it resonates, so whatever it means commercially, it's possible. What's if we take that one step further? Whenever I talk to people about interpretation exclusion clause in the oh yes, it's that Latin thing. What's that? Lucky? Oh, it's contra proper. Enitem and I have to say to people, Not anymore. No, no, it is It is. It is No, no, not anymore that's changed. We do not interpret exclusion clause. Necessarily contract referendum against the party Seeking to use the exclusion clause of supply. We just used the wrong seal. In other words, if you write it carefully and you know what traps to avoid, then it will work because it's not contra prevent. Um, it's a textual or literal interpretation. There's the transition case that we prefer to already on Papa within the commercial court used Contra preference TEM as when he might. We've done it for years on the Court of Appeals said no. The correct starting point is photo Productions and are pretty un. Britain in other ways is a natural, ordinary meaning to this. We're not holding the exclusion clause to a higher standard, so really, there's no excuse for getting it right. I cannot believe, consume it and offer because they were perfectly specific about what they meant. They were asbestos removers. They removed us best starts. Look at the red liability for any claim in relation to a specialises is excluded, and it worked Fabulous. That is the slide to put above your desk when dropped in these things. I mean, you've got ahold in negotiation I completely understand. But if you can draft it, it's a much less onerous regime than were working in. Why is that? Why have we sort of pulled back on all of this? Well, because you're big enough to look after yourselves. Clarity, clarity, clarity. That's what the Persimmon case is all about. So use clear, defined terms to maximize the liberal approach. To contract into a professional. One of these webinars would not be complete without the Unfair Contract Terms. Act 1977 on the slide, which refers to triggers, not Tiggers, is a slide which reminds us that you have to cohabit with this. I mean, you can individually negotiate clause to take it out of doctor, but there are a number of other routes by which the reasonableness test will apply. The concept of reasonableness is one concept under Section two on demand under Section 11 and schedule, too, as well. But it's a trick it to a number of routes. In other words, if you exclude liability for non contractual negligence than it has to be reasonable, well, that's there. No brain out. I mean, definitely exclude negligence. It will come back and bite you if you don't. If you have an entire agreement clause, that's a next Asian close. But I would like to have an entire agreement. Clothes, thank you very much. If you're trying to make inroads into the statutory warranties like Fitness for Purpose of Suspect Quality Goods Act, that will trigger another unfair contract terms that response. And if you're doing something with manufacturers, guarantee a number of routes towards reasonableness, just cohabit with it. Why do I say that? Because we've had so many new cases on reasonableness. It's a disappearing concept. I've set out the scheduled to old test now 40 years still going, but it's not really fit for purpose any longer. Schedule, too. So let's have a look at some recent trends. Here they come number so they can Ibn equal bopping power. Let me just say that again. London Borough Suffolk vs IBM are equal bargaining power in your dreams. But that was the case, a commercial management and Mitchell design. That's a limitation period all 28 days for piling work to prevent some science. Now this is a negative. This is not reasonable. These cases of unreasonableness are like hen's teeth, so I've found you one. It's very difficult to find on unreasonable Clause 28 day limitation period. And so six years is frankly bonkers, isn't it? You can see that so top line reasonableness has been extended beyond the ambit of DR by recent authorities. So effectively, what we're doing is leaving an old statute behind through case law on giving people much more scope through the way of Party of Ptolemy and Clear Drafting team Maximized the use of the exclusion clause. Good, good for you service providers and supplies. Why not causation? 11 deals with caps. Remember my diagram fight on all fronts. Types don't include direct direct ist over the top Use Consequential. Remember those dominoes Special, Indirect, Fabulous. Then come in like the tide on categories one after the other semiconductor line in dense semi colon, Drop a line in the Yep. Got the boy Now bring up the rear with the cap. They're section 11. It looks at the resource is and it also looks at the issue of insurance, which is a no. It is a neutral factor when we deal with indemnities but is always an issue and we deal with caps. So in shared network services next to Room. I picked this out because this is a commercial court judge who's upheld on appeal floor on one of the things that really struck me about his judgment was set, he says. In a commercial contract situation, a limitation of liability by reference to contract price is quite common on there is nothing inherently unreasonable about it. No, this is the first time I think I've had such clear judicial recognition that we are all capping to contract price. We've been doing it for years. It's a last. The court is caught up, but it's now commonly a market trend, a market factor and if once it becomes a widespread practice than it is perfectly acceptable to use it. So this is I t is when I tea is always the sharp end of the sharp end when it comes to exclusion clauses, so loving the idea now that we can capture contract price, I mean, there are some issues with that for some types of contracts, but some judicial recognition of the fact that capping to contract price Campbell reason well, fix our time is almost up together. Can I finally suggest two things. One of the the chart there is the indemnity capped. It's very important to cap the indemnity. You'll struggle because it's a little bit like that movie about transformers, where these two great, hulking robotic types go head to head with each other. On the one hand, the service provider has the exclusion of liability. On the other hand, the purchaser has the indemnity, so checking that your indemnity is capped is pretty important. Other ways to achieve that. The best way to achieve it is to actually use the word indemnity in the camp, or at least try and do something in the indemnity itself. You can creep up on it unawares and use formulas like other courses of action. But effectively, if the indemnity is uncapped thin, that's much more of a risk for a service provider. Finally, use the warranties. Remember, we were talking about fact that there may not be any liability to begin with because it was beyond Hardly and Backs and Dale. Well, the warranty is a very good way off masking and exclusion pulls. The art of the negative warranty is demonstrated shall substantially perform well. There's no obligation sufficient to warrant liability provided that the purchase. It was my fault. It's your fault. So fashioning the obligation on you can do it using endeavours, closes or good faith or some other way off, just starting from a lower point of liability. So picks as we leave. Check the identity and the warranties. Have Bean excluded. Let's just remind ourselves about our top tips for excluding liability in B two b contracts. B T w Do not try this at home in a big to see contract. Okay, make sure it's incorporated. Watch those contracts by conduct. These days, you don't have to highlight it. Just write it in the standard terms. Know what you're doing with direct, indirect and consequential loss. And if you're using types, remember, direct is not possible, but in direct and consequential loss have got better meanings. Extended interpretation than they had to before. Remember those dominoes as a result, as a consequence, use category Semicolon Drop a line in dent. Super. The latest approach to the interpretation does not oblige Contra preference. Make sure everything is separate up to triggers are widespread than you might imagine. Up to proof. It is therefore wise, however, reasonableness is reinvented in terms of party autonomy on with a few exceptions where exclusion clauses have been far too onerous. Unreasonable. Maciste. This is an easy concept to manage. Cap the loss on make sure that you include the identity in your exclusion Kloesel in your cap. And also just try and pull the whole point of liability down by using some negative or looser, um, standards to begin with. I have That's been some help. Thank you for being with me. Oh!