Examples of Limitation of Liability Clauses for Commercial Contracts

When you’re negotiating a business deal or putting together a commercial agreement, it’s easy to get focused on the big picture-making sure you get paid, delivering what’s expected, and building strong partnerships. But what happens if things go wrong? What if someone makes a mistake, data gets lost, or there’s a delivery delay that leads to big losses? That’s where limitation of liability clauses step in.

Getting these clauses right could mean the difference between a manageable setback and a business-ending liability. If you don’t want any unexpected surprises, it’s crucial to understand how they work and see real-life limitation of liability clause examples before signing on the dotted line.

In this guide, we’ll break down everything you need to know about limitation of liability clauses in UK commercial contracts. Whether you’re a startup signing your first supplier agreement or a growing business reviewing customer contracts, we’ll show you typical examples, what to include, and the risks you need to look out for.

What Is a Limitation of Liability Clause?

A limitation of liability clause is a contract term that caps how much one party has to pay the other if things go wrong. The goal is to protect your business from unlimited or unexpected claims - for example, if a customer sues you for losses after a delayed delivery, or a partner wants compensation for data loss.

With UK commercial contracts, these clauses are everywhere: in service agreements, SaaS terms, supply contracts, consultancy deals, and more. They make risk predictable, help you get insurance, and give investors more confidence.

It’s important to understand that under legislation like the Unfair Contract Terms Act 1977 (UCTA) and the Consumer Rights Act 2015, not all attempts to limit liability are enforceable. There are limits (pun intended!) to what you can lawfully exclude, especially for personal injury, death caused by negligence, or standard consumer rights.

For more on drafting contracts that stand up in court, check our guide to crucial contract clauses.

Why Do You Need a Limitation of Liability Clause?

Without a limitation of liability clause in your commercial contracts, you could be on the hook for any loss the other party suffers-even if it was unforeseeable or wildly out of proportion to your fee. That’s a scary prospect for any business, especially small ones.

• Financial certainty: You know from the outset what the maximum financial exposure is if things go wrong.
• Risk management: It’s easier to get insurance, plan cash flow, and make sensible business decisions.
• Negotiation tool: Having reasonable limits set out in advance shows fairness and clarity, making deals less risky for both sides.
• Dispute prevention: Clearly worded clauses prevent “nasty surprises” and reduce the likelihood of disputes dragging on.

But, as with everything in law, it’s all about wording things properly and recognising the limits of what’s enforceable under UK law. That’s why it’s a good idea to get professional advice when reviewing or drafting contracts.

What Does a Typical Limitation of Liability Clause Look Like?

Limitation of liability clauses can be as simple or as detailed as your business needs. But they often follow this basic pattern:

• State the types of liability covered (e.g. contract, tort, negligence)
• Exclude or limit liability for certain types of loss (like consequential or indirect loss)
• Set a “cap” on the total liability, often tied to the contract value or insurance limits
• Identify liabilities that can’t legally be limited (such as death or personal injury from negligence)

Let’s look at some practical examples below.

Limitation of Liability Clause Examples

It’s always worth seeing some real-world limitation of liability clause examples before you agree to one in your own contracts. Here are a few classic formats you’ll find in commercial agreements across the UK:

Example 1: Simple Financial Cap

“Except for liability arising from fraud or wilful misconduct, the Supplier’s total liability to the Customer, whether in contract, tort, or otherwise, shall not exceed the amount paid by the Customer under this Agreement in the 12 months preceding the event giving rise to the claim.”

This example is straightforward: the supplier can’t be sued for more than what they earned from the customer over the last year under the contract. Fraud and wilful misconduct are excluded and are always “uncapped”.

Example 2: Aggregate Cap Plus Carve-Outs

“The total aggregate liability of each party under or in connection with this agreement shall not exceed £100,000. This limitation does not apply to: (a) liability for death or personal injury caused by negligence; (b) liability for fraud or fraudulent misrepresentation; (c) breach of confidentiality or data protection obligations.”

Notice how this example specifies when the cap doesn’t apply (a key requirement for enforceability) - especially for data protection, confidentiality, and fraud.

Example 3: Exclusion of Certain Types of Loss

“Neither party shall be liable to the other for any consequential, special, indirect, or punitive damages, or for any loss of profit, revenue, anticipated savings, or business opportunity, whether arising in contract, tort, or otherwise, except to the extent such liability cannot be excluded by law.”

This is a classic way to exclude “consequential” or non-direct losses-those knock-on effects that can turn a moderate dispute into a massive claim.

Example 4: Cap Based on Fees Paid

“The total liability of the Service Provider for all claims whatsoever arising under or in connection with this contract shall not exceed an amount equal to the fees paid (or payable) to the Service Provider under this contract.”

This aligns risk with the value of the deal. If the contract is worth £20,000, that’s the maximum you’d have to pay if you’re sued (unless one of the carve-outs, like fraud or death, applies).

Example 5: Limitation Clause in a SaaS or Managed Services Agreement

“Except as expressly stated in this Agreement, the Supplier shall not be liable for any loss of data. The Supplier’s total liability for loss or corruption of data caused by its own negligence will not exceed the sum of £50,000.”

Technology agreements often call out data loss as a special case, either excluding it entirely or setting a specific financial cap.

For a deep dive into essential contract terms, including limitation and risk-allocation clauses, check our resource on secure sale and purchase agreements.

What Can (and Can’t) Be Limited or Excluded?

Here’s the catch: not everything can be limited by contract, even if both parties agree. In the UK, contract law and regulations like the Consumer Rights Act 2015 and UCTA lay down some ground rules:

• Death or Personal Injury: You cannot exclude or limit liability for death or personal injury caused by negligence. Any attempt is void.
• Fraud or Fraudulent Misrepresentation: Likewise, there’s no protecting yourself contractually if someone commits fraud-these losses can’t be capped or excluded.
• Gross Negligence, Deliberate Breach: Clauses that try to cap deliberate misconduct or gross negligence might not be upheld.
• Consumer Rights: If you deal with consumers (not just businesses), you can’t limit basic rights under the Consumer Rights Act, like receiving goods that match their description, are fit for purpose and of satisfactory quality.
• Unfair Terms: Any limitation clause must be reasonable. If a court thinks the “cap” is unreasonably low (or the exclusions are unfair), it can strike out the clause entirely.

For business-to-business contracts, you have more freedom-but reasonableness and clarity are still key, and it’s always wise to check UCTA compliance.

What Should You Watch Out for in Limitation of Liability Clauses?

If you’re reviewing a limitation of liability clause, watch for these red flags:

• No carve-outs for non-excludable losses: If a clause tries to limit everything, including fraud or death, that part is unenforceable and may put the whole clause at risk.
• Unreasonably low financial caps: Courts won’t enforce “token” caps (like £1 or £100) if it is not in line with the contract’s value.
• Ambiguous language: If the clause isn’t clear about what’s excluded or capped, you could end up with loopholes.
• No exclusion for consequential loss: A clause that leaves out consequential, indirect, or special losses could see a small issue escalate into a big claim.

And don’t forget, some business partners may have their own insurance-backed caps and will expect to see similar limits in your agreements. If you’re negotiating a major deal, it’s often a good idea to consult a solicitor before signing.

Tips for Drafting a Solid Limitation of Liability Clause

• Always clearly define what is (and isn’t) covered: Is it all claims? Specific types?
• Include explicit carve-outs for losses that can’t be capped (fraud, death, personal injury).
• Set a realistic (and reasonable) financial limit in line with the contract value and your insurance levels.
• Exclude indirect, consequential, and special losses to avoid ‘surprise’ claims.
• Make sure the wording is clear, unambiguous, and “passes the reasonableness” test under UK law.
• Regularly review and update your terms as your business grows or legal requirements change.

For a more detailed look at limitation clauses and how to cap risk in commercial deals, see our practical guide: Understanding Limitation of Liability Clauses.

Common Places You’ll See Limitation of Liability Clauses

You’ll find limitation of liability clauses (and their variants) in almost every type of business contract, including:

• Services agreements (consultancy, freelancers, digital marketing, software development)
• Supply of goods contracts
• IT and SaaS contracts
• Partnership, joint venture, and distribution deals
• Franchise agreements
• Contractor or subcontractor agreements
• Online terms and conditions

If you’re not sure whether your contract needs one (hint: it usually does), check out our explanations for key contract law support or core service agreement terms.

What If There’s No Limitation of Liability Clause?

If your contract doesn’t include a limitation of liability clause, the default legal rules apply-which can mean you’re potentially responsible for all losses, direct or indirect, that your business causes. There’s also more uncertainty, which isn’t good for anyone.

That’s why it’s considered best practice to include limitation and exclusion of liability clauses in every contract and make sure those terms are tailored for each deal or arrangement. Don’t simply copy and paste from the last document-you may miss important carve-outs or leave your business unprotected.

It can be overwhelming working out exactly what should be in your contract-but investing in tailored terms could save you time, money and hassle if something goes wrong. For more on drafting clear, effective legal documents that protect your business from day one, check our guide to contract templates.

Key Takeaways

• Limitation of liability clauses are essential in commercial contracts-they control how much you could be liable for if things go wrong.
• You can’t exclude or limit liability for death, personal injury due to negligence, or fraud; these must always be excluded from the cap.
• Clauses should be clearly worded, reasonable, and tailored to the specific deal-avoid “one size fits all.”
• What’s fair and reasonable under the Unfair Contract Terms Act (UCTA) or Consumer Rights Act 2015 can override what’s on paper.
• Get professional legal advice before drafting or signing important commercial contracts, especially for big deals or unusual risks.

Need Help with Your Commercial Contracts?

If you want to make sure your limitation of liability clauses (and your contracts in general) are water-tight and enforceable, our team of friendly business solicitors can help. We’ll review your existing paperwork, draft new terms, and guide you through negotiations-so you’re protected from day one.

Contact us for a free, no-obligations chat at 08081347754 or email team@sprintlaw.co.uk. We’re here to help your business grow, securely and confidently!