Limitation of liability
Yes, within some limits, you can agree on the extent of your liability in an agreement. Limiting your liability means limiting your obligation to pay back the damage that you cause to the other party by e.g., violating the agreement.
Without limitation of liability, one major incident can kill your company. Therefore, limiting your liability to the extent possible by applicable law is recommended. However, the extent of this limitation depends on commercial considerations (i.e., if my liability is too narrowly limited, will my contract partners accept my contract or will it slow down my customer acquisition process?) and on the likelihood of an event triggering your liability.
It must be distinguished between:
- Full limitation of liability (= no liability)
- Any damage within the scope of the full limitation of liability won't have to be paid for by the party causing it. The party who would suffer the damage takes all risks associated with that potential damage.
- The full limitation can be either
- for all damages; or, more often
- for all indirect or consequential damages; this means for all damages that are not in direct causation to a party's act or omission.
- Capped liability
- For damages that are in the scope of a capped liability, the party causing damage to the other one will only be liable up to a determined amount. This can be either an amount expressed in CHF or a reference due according to the agreement for a given amount of time.
- Usually, we will have a capped liability for direct damages, meaning damages that are directly linked to a negligent breach of contract by the party causing the damages. The fact that it is limited to direct damages only indirectly limits the liability.
- Unlimited liability
- For damages that are in the scope of unlimited liability, the party causing the damage will have to pay the party suffering it to the extent that the suffering party can prove its damage.
Validity of a limitation of liability
Your liability clause must always explicitly state that the liability remains unlimited at least for wilful or grossly negligent breach of the agreement or the law and for bodily harm.
If this is not explicitly mentioned, there's a significant risk that a court would rule that the whole liability clause is not valid, therefore enforcing a full "by default" liability for all damages.
Best practices
Liability: When it comes to liability, the following is in place.
Mandatory liability: The contract states that liability is unlimited for intentional and grossly negligent breach of contract as well as for bodily harm. Otherwise, the clause limiting liability could be void.
Excluded liability: Ideally, all liability other than mandatory liability is entirely excluded, within the limits of applicable law.
Capped liability: If the liability cannot be entirely limited, the liabilty is capped to a defined amount, either in CHF or corresponding to the total amount due by the customer during the 12 months preceeding the liability event.
Form: The LEXR standard clause available on Limitation of liability is used.
LEXR Tips
Use our standard liability clause:
"This clause sets out the general liability regime for any damages arising out of or in connection with this agreement, whether based on a breach of contract or law. Mandatory statutory liability and/or other specific liability explicitly set out in this agreement take precedence over this clause.
- No liability: Generally, the parties exclude all liability except as explicitly included in the capped or unlimited liability below. The liability is in particular (but not only) excluded in case of (i) any damages that could not be reasonably expected, indirect damages or consequential damages, or (ii) loss of profits, internal costs, or reputational damage, or (iii) damages caused by an auxiliary person that has been engaged with the consent of the other party, even in case of gross negligence or wilful misconduct of such auxiliary.
- Capped liability: The liability of either party is limited to the higher of (i) CHF [*], or (ii) the remuneration due for the last 12 months (the "Cap") in case of a negligent breach of contract or law by either party itself that directly leads to a damage of a type that could be reasonably expected and that is not explicitly excluded above.
- Unlimited liability: Exceptionally, the liability is unlimited in case of any of the following:
- A party's wilful or grossly negligent breach of this agreement or law
- Bodily harm
- Any breach of confidentiality obligations
- Indemnification for third party claims arising from the infringement of intellectual property."
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