Are the parties able to exclude or limit liability?
As a general principle, parties are allowed to exclude or limit their contractual liability towards one another. However, such limitation will not be upheld in case of fraud. Furthermore, if the limitation is considered to deprive the agreement of any meaning, it will prove unenforceable. Last but not least: deviation of mandatory rules is excluded (e.g. decennial liability).
Parties are generally able to exclude or limit liability although a provision that attempt to exempt a defaulting party from all liability for breach of contract will be void. Any terms that seek to limit a right otherwise required by Omani law, including decennial liability (see question 2), shall also be deemed void.
It is normal practice for parties to exclude liability for indirect and consequential loss. Omani courts generally award damages for actual and direct financial losses only, not for consequential loss. However Articles 176(2) and 181 of the CTL provide for the award of damages in respect of harm suffered as a consequence of reckless, aggressive or unwarranted conduct and damages for loss of profit provided there exists a direct connection between the loss of profit and the actions causing the harm.
In accordance with the freedom of contract principle, the parties are generally free to exclude or limit liability. However, liability caused by willful misconduct cannot be excluded or limited, and a court or arbitration tribunal may set aside an agreed exclusion or limitation of liability due to gross negligence.
AB 92/ABT 93 states that the contractor is not liable for consequential damage, operational loss, loss of profit or other indirect loss suffered due to defects in the work.
The parties cannot completely exclude liability. They can limit it but the Courts may not accept such limitation in case of trial.
Yes, generally the parties are able to exclude or limit the liability according to the freedom of contract principle as set forth under Article 1338 of ICC. However, if it relates to strict liability as stipulated under prevailing law, then we consider that the parties are not able to exclude or limit such liability. As mentioned above, there is no standard template for privately funded construction contract.
We note, however, that for projects funded by APBN, the Ministry of PWPH standard form contract (which will be used as reference in undertaking construction and consultancy works) contain provisions regarding liability for construction failure.
It is possible to exclude liability if both parties agree expressly on it.
Parties may exclude or limit liability contractually since the Colombian legislation does not have any restrictions in this sense. However, there are mandatory provisions that inhibit the parties to limit the liability regarding gross negligence or willful misconduct.
Parties may exclude or limit liability, but provisions limiting liability for unlawful intent or gross negligence in advance are void.
Parties are free to exclude and limit liability, except in relation to death and personal injury.
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.
Most contracts will contain a clause which expressly excludes liability for indirect and consequential loss (reflecting FIDIC Red Book 1999 Sub-Clause 17.6) but will not operate to exclude liability under the indemnity provisions or in relation to payment on termination (for the Employer’s default).
While employers will typically attempt to exclude this provision, most Contractors will try to negotiate that the limitation of liability contained in FDIC Red Book 1999 (Sub-Clause 17.6) remain in place. This limits the Contractor’s ultimate liability to the value of the contract price, except in the case of fraud, deliberate default or reckless misconduct. This limit also does not typically apply to indemnities, IP rights and infringements, and liability arising in connection with the provision of materials or utilities.
These provisions notwithstanding, the Civil Code could intervene to impose liability in relation to ‘acts causing harm’. Article 296 of the Civil Code provides that “any condition purporting to provide exemption from liability for a harmful act shall be void”. The provision empowers the court (and indeed an arbitral tribunal) to intervene and potentially award damages of the type which would have been contractually excluded. (See question 5 above)
Liability for damages caused through wilful intent or gross negligence cannot be limited. If the construction project is being carried out under the conditions of the standard building contract Terms (VOB/B), liability for construction defects can be limited only in exceptional cases (see section 13 subsection 7 (5) VOB/B).
It is permitted for parties to limit or disclaim liability. However, the limit on their ability to do so is the principle of unconscionability or gross disadvantage to the other contracting party.
Between professionals, it is possible for the parties to exclude or limit liability, but subject to certain conditions, including, inter alia the following:
- limitation or exclusion of liability is prohibited in certain field. This is the case for the mandatory contractors’ guarantees, which cannot be excluded or limited by the parties;
- the limitation or exclusion of liability shall not deprive the essential obligation of a party of its substance;
- no limitation or exclusion of liability can be applied in case of a gross fault or of a wilful misrepresentation.
Pursuant to Art. 332 of the GCC, clauses limiting liability for intent or gross negligence are null and void. Thus, the parties may limit their contractual liability only for mere negligence. In addition, the parties are vicariously liable for the fault of their employees/agents (334 GCC).
Exclusion of liability is treated as a condition contrary to the essence of the contract and thus not valid. Limitation of liability provisions are valid.
It is not uncommon to find exclusion and/or limitation of liability clauses in construction contracts (e.g. Sub-Clause 17.6 of the Conditions of Contract, FIDIC Yelow Book).
Generally, Malaysian Courts will uphold these clauses, especially in contracts entered between sophisticated commercial parties dealing at arm’s length. These clauses however are strictly construed by the Courts and due effect will only be given to the clear intention of parties.
Nonetheless, if these clauses are so wide as to raise the prospect of an absurdity that would defeat the purpose or main object of the contract (e.g. excluding liability for a fundamental breach of contract), then such a clause may not be upheld by the Courts.