Limitation of liability is one of the most crucial, yet often misunderstood, tools in warehousing and logistics contracts. In the fast-moving world of commercial supply chains, contracts form the backbone of business relationships. Whatever logistics services you provide, your terms of business must be carefully drafted to give you the right legal protection.
In this article Nick Clarke, Senior Partner and Head of Dispute Resolution answers five of the most common questions his team is asked by warehousing operators, logistics firms and supply chain businesses across England and Wales.
What does limitation of liability mean?
In any commercial contract, each party takes on certain obligations. If one party breaches those obligations, for example by failing to meet a delivery deadline, they may be legally liable to compensate the other party for the resulting loss.
A limitation of liability clause sets a cap on how much compensation you are responsible for in the event of a breach. It’s a contractual safeguard that helps prevent exposure to open-ended or disproportionate financial risk in the event of a breach.
How does limitation of liability apply in warehousing?
In warehousing contracts, limitation clauses are especially important given the high value of goods being stored or handled. To rely on such a clause, it must be clearly drafted and properly incorporated into the contract with the customer.
Customers often misunderstand what their logistics provider is responsible for. Warehouse keepers and transport companies do not insure the goods themselves; they insure against their liability for losses arising from their performance of the contract if that performance is negligent or in breach of the agreed terms. It is for the owner or other consignee to insure the goods themselves and that should be made clear to the customer.
If terms containing a limitation of liability are properly incorporated and a liability arises, the logistics provider can then seek to rely on the clause to cap their exposure at the agreed amount, provided the clause applies to the type of loss in question and meets the requirements of contract law.
When can you negotiate a limitation of liability?
A limitation of liability must be negotiated at the time of entering into a contract. However, certain liabilities cannot be excluded. Under English law, a party cannot exclude liability for death or personal injury caused by negligence. Similarly, liability for fraud or fraudulent misrepresentation is generally not capable of being excluded.
Parties should also be aware that any clause which seeks to limit liability must be reasonable, particularly where the Unfair Contract Terms Act 1977 applies. This means the clause must strike a fair balance between the parties and be appropriate for the type of agreement in place.
Are these clauses always enforceable?
No, they’re not automatically enforceable. There are two key reasons why a clause might not be enforceable.
First, if the limitation wasn’t properly incorporated into the contract, it may not be considered binding. Second, a court may refuse to enforce the clause if it doesn’t cover the specific type of loss, or if it’s deemed unreasonable under the Unfair Contract Terms Act.
Limitation provisions in industry standard logistics terms are however well understood by the Courts and while there can be no absolute guarantee of them being upheld, using such terms gives a good chance of them being enforceable.
Enforceability depends not only on what the clause says, but how it was introduced and agreed between the parties.
Are limitation of liability clauses something you can rely on to protect your interests?
Yes. Limitation clauses are a critical tool in any commercial contract. Without them, liability is uncapped, which could result in significant financial exposure. An enforceable clause provides clarity, protects the business’ financial position, and allows for appropriate risk allocation between the parties.
For warehousing operators, this protection should be fundamental.
Take control of your liability exposure
Warehousing contracts can be complex, but protecting your business doesn’t have to be. A clearly worded, properly incorporated limitation of liability clause can be the difference between a manageable issue and a serious liability.
We work closely with warehousing and logistics providers to draft, review and enforce commercial contracts that help protect your interests, including the UKWA standard conditions of contract, which members are entitled to use as part of their membership.
These provide a robust limitation of liability provision and our recommendation would be to incorporate them into your contracts. If you're unsure whether your contracts offer the protection you need, we can provide comprehensive advice and support.
Key Contact
Nick Clarke
Senior Partner | Head of Dispute Resolution
Nick became the firm’s Senior Partner in 2019, having been with Aaron & Partners for over 20 years, and he sits on the firm’s management board. He also leads the Dispute Resolution team.
