Limitation of liability
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Boilerplate Anatomy™
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There is limited liability, in the sense of the corporate veil, and the artifical trench the King’s Bench draws around a corporation, and there is limiting liability, in the sense of putting a contractual limitation on the amount for which one may be liable in damages to another, notwithstanding the damages one has caused.
Limiting liability in contract
There are understandable versions of this — the limited recourse terms of a multi-issuance repackaging vehicle being the clearest example; there are less standable versions: auditors, consultants, lawyers and like-minded service providers who with one hand extract rent, and with the another deny liability for the “service” they provided beyond the “value” of the rent they extracted, and then there is this fun confection which we can’t quite understand the point of, but it tickles us that some earnest lawyer might have thought she was, with it, doing some good:
Liability. Unless this Agreement contains an explicit liability of a Party, the Parties limit their liability to the maximum extent permitted by applicable law.
At both fearful of the terrible calibre of one’s own drafting — shouldn’t one know whether the agreement contains an “explicit liability”, since one drafted it? — and also fearful of the phantoms of the unknown: if the parties’ liability is limited by applicable law to a maximum, then what one achieves by laying one’s feeble contractual gossamer across the same bolted-shut iron door we struggle to think.
Limiting liability in negligence
We have recently come across this piece of opportunistic shoehorning in, of all places, an NDA from, of all people, a consultancy firm:
The aggregate liability of each party for claims of compensatory damages resulting from negligence shall be limited to the maximum amount of EUR 4 million. The liability for injuries to a person’s life, body and health, or for gross negligence or for wilful default shall remain unaffected.
There is quite a lot to unpick here; not much of it good.
Firstly, what kind of monstrous behaviour do you expect to rule out, in an NDA, if you are liable for anything up to four million euros? It is famously hard to prove any loss under an NDA — that’s why they have that self-serving “equitable relief” language.
Secondly, note the reference to “compensatory” damages — meaning they are nobly eschewing relief from exemplary damages, designed not to compensate a victim but to punish a wrongdoer. Under English law, these are not in any case available under a contract but only for other kinds of non-contractual civil wrongs, like torts, which makes you wonder why —
Thirdly, this party would purport to limit claims sounding in negligence. That is, claims arising between “neighbours” where they have not framed their exact mutual expectations under a contract. Famously, contracts override torts: except where you build a house that collapses on someone you didn’t build it for, you have no concurrent liability in negligence for a liability that arises under a contract. Here there is a contract: the NDA. So what gives? We imagine the idea is to contractually limit liability in negligence beyond the narrow boundary described by the NDA.
This is a cheeky move. But we grudgingly admire the high-chutzpah ninja dickishness of the manoeuvre all the same. “By signing this trifling NDA,” they say, “you are forever limiting the amount you might ever claim against, us in any sphere in which we encounter each other, for anything we do, short of killing someone, to damage your interests.”