Every once and a while I come across language in a contract that makes be ask that exact question. The language in question was in a contract involved with a lawsuit between The London Fire and Emergency Planning Authority v Halcrow Gilbert Associates and Others.
The specific limitation of liability read as follows:
“Neither the contractor nor the purchaser shall be liable to the other by way of indemnity or by reason of any breach of the contract or of statutory duty, or by reason of tort (including but not limited to negligence) for any loss of profit, loss of use, loss of production, loss of contracts or for any financial or economic loss or for any indirect or consequential damage whatsoever that may be suffered by the other.”
The first thing I always recommend when you have a commitment that runs on like this is to split it down to what each of the individual commitments are to make sure that you understand it and each works for you. In this paragraph the language disclaimed liability for both parties for six different things. Let’s take a look at each of these to see the real impact of the language;
1.“Neither the contractor nor the purchaser shall be liable to the other by way of indemnity. This means that even if there was an indemnity provision in the agreement the party providing the indemnity was not liable under the indemnity making it useless.
2. "Neither the contractor nor the purchaser shall be liable to the other by reason of any breach of the contract or of statutory duty”. This eliminates the potential for either party to be liable under contract law for either breach or failing to meet a statutory duty.
3. “Neither the contractor nor the purchaser shall be liable to the other by reason of tort (including but not limited to negligence” This eliminates either party being able to claim not just under contract, but also by tort for injuries or damage sustained by a tortuous act.
4. “Neither the contractor nor the purchaser shall be liable to the other for any loss of profit, loss of use, loss of production, loss of contracts”
This excluded claims for loss of profits, use, production or contracts
5.“Neither the contractor nor the purchaser shall be liable to the other for any financial or economic loss”. This eliminated the right to claim for any financial or contractual loss.
6.“Neither the contractor nor the purchaser shall be liable to the other for any indirect or consequential damage whatsoever that may be suffered by the other.” This excludes any indirect or consequential damages.
The net effect of all of these exclusions was that neither party would be liable to the other party for anything. It eliminated all potential claims for damages. It eliminated all remedies available under contract or tort. The only potential claim that could still be made would be under equity. The two primary remedies under equity are specific performance and injunctive relief. In a contract situation unless what you offer is so unique to you that only you could provide it, courts won’t order specific performance. Injunctive relief is used to stop people from doing things and I don’t think you can stop someone from not working or not performing as that would be equivalent to ordering performance.
In the end the court will try to enforce the intent of the parties to the contract and here, with respect to liability the intent was clear that neither party would be liable to the other party for anything. While one party such as a buyer may want to be absolved of liability for everything except payment, this was the first time I ever saw a clause that completely excused both parties of any liability whatsoever.
What were they thinking?
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