Liability Limitation Clause template clause

    Updated: 22 March 2026

    Please note: these example clauses are intended as a starting point, not as legal advice. Always adapt the text to your specific situation and have important contracts reviewed by a legal professional.

    Clause text

    Article [X] - Limitation of Liability

    1. Subject to paragraphs 3 and 4 of this Article, the total aggregate liability of either Party to the other Party under or in connection with this Agreement, whether arising in contract, tort (including negligence), breach of statutory duty, or otherwise, shall not exceed [the total fees paid or payable under this Agreement during the 12-month period immediately preceding the event giving rise to the claim / a fixed amount of [currency] [amount]] ("Liability Cap").

    2. Subject to paragraphs 3 and 4 of this Article, neither Party shall be liable to the other Party for any:
    (a) loss of profits, revenue, or anticipated savings;
    (b) loss of business or contracts;
    (c) loss of goodwill or reputation;
    (d) loss of or corruption of data;
    (e) indirect, special, or consequential loss or damage,
    in each case whether or not such loss was foreseeable or the Party had been advised of its possibility.

    3. Nothing in this Agreement shall limit or exclude liability for:
    (a) death or personal injury caused by negligence;
    (b) fraud or fraudulent misrepresentation;
    (c) any liability that cannot be limited or excluded by applicable law.

    4. The limitations set out in paragraphs 1 and 2 shall not apply to:
    (a) breaches of the confidentiality obligations under Article [Y];
    (b) a Party's indemnification obligations under Article [Z];
    (c) wilful misconduct or gross negligence by either Party.

    5. Each Party acknowledges that the limitations and exclusions in this Article reflect a reasonable allocation of risk between the Parties, having regard to the fees payable under this Agreement, and that this Agreement would not have been entered into without such limitations.

    What does this clause mean?

    A liability limitation clause defines the maximum financial exposure each party accepts under the contract. It typically has three components: a cap on direct damages, an exclusion of indirect and consequential damages, and carve-outs for categories of liability that cannot legally or commercially be capped.

    The direct damages cap is usually tied to the contract value, often expressed as the total fees paid in the 12 months before the claim. This creates a proportional relationship between the risk each party takes on and the commercial value of the deal. The consequential damages exclusion protects both parties from open-ended claims for lost profits, lost business opportunities, and reputational harm.

    The carve-outs in paragraphs 3 and 4 are critical. Under English law, liability for death or personal injury caused by negligence cannot be excluded (Unfair Contract Terms Act 1977, s.2). Similarly, most parties will resist capping liability for confidentiality breaches or wilful misconduct, because these represent controllable risks. According to World Commerce & Contracting, 9.2% of annual revenue is lost to poor contract management, and unclear liability provisions are a frequent source of disputes that contribute to that loss.

    When should you use this clause?

    A liability limitation clause should appear in virtually every B2B contract. The commercial question is not whether to limit liability, but where to set the cap and which categories of loss to exclude.

    For high-value contracts, negotiate the cap carefully. Suppliers typically want a lower cap (e.g. 100% of fees paid in the preceding 12 months), while buyers prefer a higher cap (e.g. 200% of annual fees or a fixed monetary amount). The appropriate level depends on the nature of the services, the potential for harm, and whether the supplier carries professional indemnity insurance.

    Deloitte and DocuSign (2024) estimate that $2 trillion is lost globally each year due to poor contract management. A well-drafted liability clause, combined with proper contract tracking, can protect your organisation from disproportionate financial exposure while maintaining a fair risk allocation.

    Customize these elements

    • 1Choose between a rolling 12-month fee-based cap and a fixed monetary cap based on the contract structure
    • 2Review the consequential damages exclusions and add or remove categories specific to your deal
    • 3Ensure the carve-outs reflect mandatory rules in the governing jurisdiction
    • 4Consider a separate, higher cap for confidentiality and data breach liabilities
    • 5Add paragraph 5 (acknowledgement of risk allocation) to strengthen enforceability

    Sources

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