Are the parties able to exclude or limit liability?
The parties are free to agree upon excluded or limited liability.
Yes. Exclusions and limitations of liability are valid under Swedish law and are generally upheld in accordance with their terms. Owing to the strong principle of freedom of contract, a Swedish court or arbitral tribunal would only in exceptional circumstances modify or set aside an exclusion or limitation of liability clause in a commercial contract.
Yes. In general terms, Hong Kong recognises and upholds, the parties’ freedom of contract including to exclude or limit liability.
The general common law rules regarding unenforceability of contract provisions apply to construction contracts. For example, terms which are insufficiently certain, lack consideration or are an unreasonable restraint of trade may be unenforceable.
The Control of Exemption Clauses Ordinance (Cap. 71) also renders unenforceable certain clauses purporting to exclude or restrict liability for negligence (e.g. for death or personal injury) or under contract (where one of the parties is dealing as a consumer or on the other’s written standard terms of business). It has been held that very short defects liability periods do not satisfy the reasonableness test laid down in the Control of Exemption Clauses Ordinance (Cap. 71).
Generally parties to a contract are free to exclude or limit their liability as they see fit, save that it is not possible to exclude liability in negligence for death or personal injury, or fraud. Where both parties are sophisticated commercial enterprises, the courts will typically give full effect to limitation clauses. This is subject to the application of the Unfair Contract Terms Act 1977, which provides that when a business contracts on its standard terms, any exclusions or limitations must be reasonable.
Many standard form construction contracts contain provisions shifting or limiting the parties’ risk, generally known as “exculpatory clauses.” An exculpatory clause is one that relieves a party from liability resulting from a negligent or wrongful act. Exculpatory clauses in contracts are generally disfavored under the law of most states, and such contract provisions are strictly construed against the party claiming the benefit of the clause.
A Limitation of Liability (“LOL”) clause is a type of exculpatory clause commonly found in services contracts. An LOL clause generally establishes the maximum liability or exposure of the design professional if there is a claim. The purpose of the clause is to recognize the proportional role of the professional service provider in the project and limit their liability according to the level of compensation received.
In order to contractually limit damages for a party’s future conduct, the contractual language at issue must be: 1) clear, 2) unambiguous, 3) unmistakable and 4) conspicuous, to be enforceable. While a contractual clause limiting the amount of damages that may be recovered for the acts of a party (LOL clause) in contrast to one that totally exonerates a party from its future conduct (exculpatory clause) are not exactly the same, both clauses are generally referred to by courts as “exculpatory clauses.”
Courts are reluctant to enforce contracts that relieve parties from the effects of their future acts. Such clauses, although not per se against public policy, have resulted in states enacting anti-indemnity statues which hold such clauses void and unenforceable. However, where the parties to a contract are sophisticated business entities who deal at arm’s length, courts will generally enforce a Limitation of Liability clause to protect design professionals, especially when the damages are purely economic.
The parties may exclude or limit liability in line with the thereto applicable Law on Contracts and Tort. The said law sets in that respect the following basic rules: Debtor’s liability for intention or gross negligence may not be precluded in advance by contract. At the request by an interested contracting party, the court may, however, also annul the contractual provision on the exemption of liability for simple negligence, should such agreement be the result of the monopoly position of the debtor or, otherwise, of unequal mutual positions of the contracting parties. A provision of a contract shall be valid by which the highest amount of compensation is determined, unless such amount is in obvious disproportion to the damage and unless the law provides otherwise for the specific case. In case of limiting the amount of compensation, the creditor shall be entitled to full redress should the impossibility of performance of obligation be caused by willful misconduct or gross negligence of the debtor.