To what extent can liability be excluded (if at all)?
By virtue of contractual arrangements, parties are permitted to exclude liability for indirect losses even if they were aware of such losses when they made the contract. The Contract Act provides for the payment of damages/compensation by the defaulting party to the aggrieved party for any loss or damage which arose as a natural consequence of such breach; or which the parties knew, at the time of entering into the contract, to be likely to result from such a breach. The Contract Act does not allow damages for remote, indirect or incidental loss. In addition the Contract Act permits parties to agree on the quantum of liquidated damages payable by the breaching party in case of breach, thereby limiting the quantum of liability of the breaching party.
If the limitation period has elapsed, the right to seek damages is extinguished.
As mentioned in Question No. 13, in B2C contracts, for example, consumer contract clauses that totally exempt a manufacturer, etc. from compensating a consumer for damages arising from a product defect, etc. will likely be invalid (Article 8 and 10 of the CCA).
The Article 8 of the CCA sets forth the following consumer contract clauses as void:
(i) Clauses which totally exempt a business operator from liability to compensate a consumer for damages arising from default by the business operator;
(ii) Clauses which partially exempt a business operator from liability for damages arising from default by the business operator (limited to default which arises due to an intentional act or gross negligence on the part of the business operator, the business operator's representative or employee);
(iii) Clauses which totally exempt a business operator from liability for damages to a consumer which arise from a tort pursuant to the provisions of the Civil Code committed during the business operator's performance of a consumer contract;
(iv) Clauses which partially exempt a business operator from liability for damages to a consumer arising from a tort (limited to cases in which the same arises due to an intentional act or gross negligence on the part of the business operator, the business operator's representative or employee) pursuant to the provisions of the Civil Code committed during the business operator's performance of a consumer contract; and
(v) Where a consumer contract is a contract for value, and there exists a latent defect in the subject matter of the consumer contract (including where a consumer contract is a contract for work, and there exists a defect in the subject matter of a consumer contract for work; the same shall apply in the following paragraph): Clauses which totally exclude a business operator from liability to compensate a consumer for damages caused by such defect.
In B2B contracts, the seller often limits the scope of contractual liability to the extent and within the scope of actual and direct damages and limits the amount of damages to a certain amount of money (for example, the total price of the products, etc.).
It is possible to limit the liability with an agreement between buyer and the seller. However, such agreement is limited in accordance with the Turkish Code of Obligation. In case of intent or gross negligence of the seller, it is not possible to limit contractual liability.
The contracting parties may agree, in advance, to limit or exclude contract liability by stipulating as such in the actual contract. However, exclusion/limitation of liability provisions may not be enforceable if the seller was aware of the product defect but nevertheless failed to disclose such defect at the time of contract execution.
If the contract does not specify a warranty period for defective products, please note that under the Civil Act the purchaser must exercise its right to bring a warranty claim against the seller within six months from the date on which the purchaser became aware of the fact that he/she suffered damages as a result of the defective product. In cases of a sale between merchants, the Commercial Act stipulates that the buyer shall, upon receipt of the subject matter, inspect it without delay, and immediately give a notice thereof to the seller if any defect is found therein; otherwise, buyer has no right claim warranty liability ( i.e.to rescind the contract, to demand price cuts or to claim damages thereby).The same shall apply in cases where, within six months, the buyer discovers in the subject matter of the sale a defect which was not immediately discoverable. However buyers' such duties to inspect subject matters and to notify defects rule shall not apply to a seller acting in bad faith.
Separately, claims for warranty liability and liability for breach of contract are generally subject to a statute of limitation of 10 years, however for the claim arising out of a commercial activity the period of statute of limitation is shorten to 5 years.
As noted in question 6 above, the consumer guarantee provisions cannot be excluded or modified by contract. Any such attempts to exclude of modify the guarantees by contract are rendered void by the ACL.
Further, the ACL contains an unfair contract provision which operates to remove unfair terms in standard form consumer contracts. While this would be assessed on a case by case basis, It could be used to challenge provisions seeking to limit liability in standard form consumer contracts.
Liability can be excluded in the following cases:
- The claimant fails to prove the elements necessary to the success of a contractual liability type claim (see question 13).
- The defendant successfully raises one of the following defences:
- The product defect is caused by force majeure;
- A fault/negligence is committed by the claimant or a third party.
- The following limitation periods, where applicable, have expired:
- Regarding hidden defects the limitation period of two years from the discovery of the defect, within a limit of five years from the delivery of the product;
- Regarding the duty to deliver and guarantee the product, the limitation period of two years if the claimant is a consumer and five years if the claimant is a professional;
- In B2B contracts between professionals of same speciality, a clause limits the guarantee against hidden defects and/or the compliance of the product with the agreed contractual specifications
According to the Consumer Protection Code, the supplier will not be held liable if it is able to prove that:
(i) the product was not put into the market;
(ii) although the product was put into the market, the product does not present any flaws;
(iii) exclusive fault of the consumer or a third party.
The supplier should use such prerogatives guaranteed by the law to prove that the agreement was fully obeyed and, therefore, no liability is applicable.
The Contract Law allows parties to agree on limitation of liability clauses in their agreements, by which they are free to exclude or set limits on their liability for breaching contractual duties. However, the Contract Law also provides for two exceptions: if a limitation of liability clause limits liability resulting from personal injury, or to limit property loss arising out of wilful misconduct or gross negligence, then the limitation of liability clause shall be null and void.
Liability for breach of contract may be excluded or limited by a term of the contract itself in contracts with consumers and between businesses, subject to the following exceptions:
- for contracts with consumers, the CRA sets out the scenarios where liability cannot be excluded, which includes liability for goods to be of satisfactory quality and liability for death or personal injury arising from negligence cannot be excluded;
- for contracts based on a supplier's written standard terms of business or with a consumer, liability for breach of an express term of the contract can only be excluded to the extent that it is reasonable to do so.
Liability for breach of statutory implied terms as to correspondence with description, satisfactory quality and fitness for purpose cannot be excluded or restricted as against a consumer.
The CRA disallows the inclusion of those unfair terms covered by UCTA and the Unfair Terms in Consumer Contracts Regulations 1999. In addition, the CRA considers the implied terms in relation to the quality of goods and prevents attempts to exclude liability for breaches. Further, the CRA brought a test of 'fairness' into use, meaning that any term causing significant imbalance between the parties shall be 'unfair'.
Liability can to some extent be excluded and/or limited on a contractual basis. However, there are restrictions in particular with regard to strict product liability according to the ProdHaftG (for which liability may never be excluded) and tort liability according to § 823 BGB (for which liability can be limited). Thus, in order for such clause to be effective, these restrictions have to be minded and the clause has to differentiate between the different liability regimes, the level of default and the legal right affected.
In Virginia, “to exclude or modify the implied warranty of merchantability or any part of it the language must mention merchantability and in case of a writing must be conspicuous, and to exclude or modify any implied warranty of fitness the exclusion must be by a writing and conspicuous.” Va. Code § 8.2-316. Va. Code §8.1A-201 defines conspicuous as “written, displayed, or presented [in a manner] that a reasonable person against whom it is to operate ought to have noticed it.”
The Products Liability Act is mandatory. The Act cannot be derogated from by prior agreement to the detriment of the claimant or any entity subrogated to the claimant's rights.
Manufacturers and intermediaries may to a certain extent enter into contractual agreements on exclusion of liability vis-à-vis each other.
Within B2B relations, the parties may agree to contractually exclude civil liability between each other and this particularly may be applied to the compensation of losses by one commercial party to another suffered in result of any consumer related claims.
Depending on whether it is a consumer contract or not, the law allows contractual deviations. In the case of consumer contracts, the law regularly prohibits the limitation of liability exclusions and warranty exclusions. If the contract is not subject to a particular legal regime, such as consumer protection, restrictions are permitted to the extent that they are not deemed to infringe upon unwritten mandatory law.