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Minimising exposure to Contractual Damages

Please note the Law may have changed since the publication of article.

The frequency of litigation against software houses has increased substantially in the last few years. We thought that in this newsletter it might be helpful to analyse some of the key cases in this area and to offer some outline advice about how to minimise your contracual exposure. As you would expect me to say, rather than rely on the general conclusions set out in this edition, you need to talk to me or another IT specialist solicitor about your precise circumstances in order to make appropriate changes to your contractual documentation.

Making your Terms and Conditions (“T&C”) enforceable

It is vital that your (“T&C”) are brought to the attention of your potential customer before it has committed itself to use your services. In the traditional offline world, this usually means sending out the T&C with your quote and getting them signed by the potential customer before you agree to start work. If you contract online, then the same principle applies and the potential customer should be obliged to scroll through and “click accept” your terms and conditions before you agree to provide your products or services. If you don’t follow this advice, you may not be able to rely on your T&C as the legal basis of your contractual relationship.

Effective Limitation of your potential Liability

This is a complex area. However, there are some basic guidelines that should help you to minimise the risk of liability and the extent of damages in the event that you are in breach of contract and your customer suffers losses:-

  • make sure that the clauses which purport to limit or exclude your liability are reasonable – a blanket rejection of all liability is unlikely to be upheld
  • don’t put all of your eggs into one basket – there should be a raft of different clauses addressing different areas of potential liability so that if a court rejects some, you may still be able to rely on others
  • expressly accept liability that you cannot legally exclude e.g. for death and personal injury caused by your negligence
  • include a clause which caps your liability and choose a logical basis for that cap such as a tie-in to your professional indemnity insurance cover

Key Decisions where the IT Provider suffered because of its T&C

  • £9,000,000 damages awarded for breach of contract
  • Pegler Ltd v Wang (UK) Ltd – the Court held that Wang’s exclusion clauses were not capable of excluding liability for the loss claimed
  • £800,000 damages awarded for breach of contract
  • St. Albans and City District Council v International Computers Ltd – the Court held that the £100,000 contractual liability cap was unreasonable
  • £2,200,000 damages awarded for breach of contract
  • South West Water v International Computers Ltd Damages awarded Court did not uphold £100,000 contractual liability cap

Free Review of Your Terms and Conditions

Without charge, we will review your existing contracts and report back to you on your level of exposure and what can be done to reduce it. For further information, please  contact Simon Halberstam

1 Comment to Minimising exposure to Contractual Damages

  1. admin's Gravatar admin
    August 15, 2009 at 12:43 am | Permalink

    This is my comment.