Many professional firms seek to limit their liability for negligence by including exclusion clauses in their contracts.
These clauses can be effective in protecting firms, but they need to be carefully worded to ensure that they will be enforced by the courts.
To be effective exclusion clauses must be incorporated into the agreement between the parties and worded so they cover the liability in question. Exclusion clauses will not work if they are overturned by other laws, such as the Unfair Contract Terms Act 1977, the Unfair Terms in Consumer Contracts Regulations 1999, or the Consumer Protection Act 1987.
Certain clauses, such as those which try to exclude liability for death or personal injury caused by negligence or for fraud are unlawful. The courts will also assess exclusion clauses as a whole – so by trying to exclude liability prohibited by law a firm may find that its other clauses become ineffective as well.
Some professional bodies restrict the extent to which liability can be limited. For example the Solicitors PII rules state that “You must not exclude or attempt to exclude liability below the minimum level of cover. If you seek to limit your liability to a level above the minimum level of cover, the limitation should be in writing and you should bring it to your client’s attention.”
The Accountant professional body ICAEW also recommends that any limitations on liability are agreed in writing to reduce the scope for misunderstanding.
Reporting on a 2013 construction case Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd, solicitors Shepherd and Wedderburn highlighted that “The courts will not automatically enforce clauses that seek to exclude or limit a party’s liability but rather will examine the specific words used, the particular circumstances of each case and the level of commercial experience of the parties in reaching a conclusion.”
Law firm Stevens & Bolton LLP has published a useful paper which explains the issues in preparing “Effective Exclusion Clauses”.
James Burgoyne, Director, Brunel Professional Risks says: “It is possible for professional firms to limit their liability for negligence by including exclusion clauses in their contracts. In general, however, the courts’ reaction to anything which seeks to limit liability is never 100{0a6a65c996ed4169444354e707b897cdb00dbefc1d0429e8febb9bf11027ba53} predictable. It is therefore important that these are worded carefully and are not too ambitious in their scope.”
