Limitation of liability clause (UK): what it covers

A limitation of liability clause sets a ceiling on what one party can be made to pay the other when something goes wrong. It is usually a fixed sum or a multiple of the fees under the contract, and it normally sits next to an exclusion clause that rules out whole categories of loss, such as loss of profit or loss of data.

For a freelancer or contractor, this is the clause working in your favour, which is exactly why clients often write it to protect themselves and not you. The two questions that matter are whether the cap is mutual and whether it actually covers everything you might be liable for.

Key Takeaways

• A cap only helps if it is mutual. Many contracts limit the client's liability and leave yours open.
• A cap does not automatically cover the indemnity clauses. Those are frequently carved out.
• A per-claim cap lets several claims add up to far more than your fee. An aggregate cap does not.
• Liability for death or personal injury from negligence can never be excluded or restricted.
• Where you are on the client's standard terms, their limitation on their own breach binds you only so far as it is reasonable.

What does a limitation of liability clause do?

Most liability clauses do three separate jobs, and it is worth reading them as three:

• The cap: the maximum recoverable amount, often "the total fees paid under this agreement" or a multiple of them.
• The exclusions: categories of loss ruled out entirely, typically indirect and consequential loss, loss of profit, loss of business, loss of goodwill and loss of data.
• The carve-outs: liabilities deliberately left outside the cap. Some are required by law, such as death and personal injury from negligence, and fraud. Others are commercial choices, and the indemnity clause is the one most often placed there.

The carve-outs are where the real exposure lives. A contract can advertise a comfortable cap in one sub-clause and then remove the most expensive obligation from it in the next.

What a limitation of liability clause means for you

Read the clause backwards, starting with what is excluded from the cap, then the exclusions, then the number. The number is the part everyone reads first and the part that matters least.

Ask three questions:

1. Does the cap apply to both of us? A one-way cap tells you the contract has not been drafted for a relationship of equals.
2. What has been carved out? If the indemnities sit outside the cap, your real maximum exposure is unlimited regardless of what the cap says.
3. Is the excluded loss the only loss I would ever cause? If the clause excludes loss of profit, loss of business and loss of goodwill, and your work is commercial, there may be very little left that the cap even applies to.

A cap set at the value of the contract is a common, defensible position for freelance work. What makes it fair or unfair is the surrounding wording, not the figure. This is one of the terms we cover in risky contract clauses UK freelancers should always check.

Per-claim cap vs aggregate cap: how the limit is counted

The figure in a liability cap tells you how much. The words around it tell you how many times. The same £10,000 means something very different in each of these three shapes:

• Per claim: "liability for each claim shall not exceed £10,000", or "per event or series of connected events". Every separate claim gets its own £10,000, and nothing limits the total.
• Aggregate: "total aggregate liability under or in connection with this agreement shall not exceed £10,000". One pot for everything, however many claims there are.
• Annual aggregate: "total liability in any contract year shall not exceed £10,000". One pot per year, refilled each year the contract runs. On a three-year retainer that can mean up to £30,000.

On most freelance work you deliver and the client pays, so most claims would run against you. That makes the aggregate cap the one that protects you. A per-claim cap limits the size of each claim and leaves the running total open.

Leaving out "per claim" does not settle the question either. In Drax Energy Solutions Ltd v Wipro Ltd [2023] EWHC 1342 (TCC) (judgment), a clause limited the supplier's "total liability" to 150% of the charges paid or payable in the 12 months before "the claim first arose". The customer argued for a separate cap on each of its claims. The High Court decided it was a single cap for all of them, giving weight to the word "total" and to the absence of any "per claim" wording. Both sides had professional advice, and they still needed a judge to tell them which kind of cap they had agreed.

Fees paid, fees payable, and when the cap is measured

"The fees paid under this agreement" and "the fees paid or payable" can be thousands of pounds apart on a project paid in milestones. Caps that look back over a period, such as "the fees paid in the 12 months before the claim arose", also move over the life of a contract. Neither version is better in itself. Read the formula against your own payment schedule, so you can work out the actual number on the day something goes wrong.

Separate caps for data and confidentiality

Some contracts add a second, higher cap for particular risks, most often breaches of data protection or confidentiality obligations. Check whether that second cap sits inside the main one or on top of it. If it sits on top, your total exposure is the two figures added together.

Worked examples: what a liability cap means in pounds

Small differences in wording can produce very different bills. These three examples use figures a UK freelancer could realistically see. They show how the wording works, not what a court would award in a real dispute.

Example 1: a £6,000 website build capped at fees paid

You agree to build an online shop for £6,000, paid in three milestones of £2,000. The contract says:

Each party's total aggregate liability under this agreement is limited to the fees paid to the Supplier in the 12 months before the claim arose. Neither party is liable for loss of profit, revenue or business.

Two milestones have been paid when a fault in your checkout code takes the shop offline for four days. The client says it lost £9,000 in sales, and it paid another developer £2,800 to fix the fault quickly.

• The cap is £4,000, because £4,000 had been paid when the claim arose.
• The £9,000 of lost sales is lost revenue, which this clause excludes. None of it is recoverable under this wording.
• The £2,800 repair bill is the kind of loss the cap exists for, and it fits under the £4,000 ceiling.

Without the clause, the client could try to recover all £11,800, limited only by the ordinary rules on damages. Had the cap said "fees paid or payable", it would have been £6,000. That makes no difference to this claim, but it would to a larger one.

Example 2: a £12,000 cap counted per claim and in aggregate

You are on a 12-month retainer worth £12,000. Over the year, three unrelated problems lead to three claims of £5,000, £8,000 and £4,000, which comes to £17,000.

Under the per-claim cap, no single claim reaches £12,000, so the cap never bites and you owe more than the whole year's fees. Under the aggregate cap, you stop at £12,000.

Wording such as "per event or series of connected events" raises one more question: whether problems that share a root cause count as one event with one cap, or as several events with a cap each. That is an argument you would be having after something has gone wrong, which is why plain aggregate wording is easier to live with.

Example 3: an £8,000 brand project with the indemnity carved out

You design a brand identity and packaging for £8,000. The liability clause is mutual and capped at the fees, but a later sub-clause reads: "The limits in this clause do not apply to liability under clause 9 (Indemnities)." In clause 9, you indemnify the client against all losses arising from any claim that your work infringes someone else's intellectual property.

After launch, a type foundry says the packaging uses one of its fonts without a commercial licence. The client pays £2,500 to settle, £14,000 to withdraw and reprint the packaging and £4,500 in legal costs, then passes the £21,000 to you under clause 9.

Your professional indemnity insurance may not follow you into that £21,000 either, because many policies exclude liability you took on only by contract. The indemnity clause page covers how to narrow that obligation.

The UK law on limitation of liability

Limitation and exclusion clauses are controlled by the Unfair Contract Terms Act 1977, and for a freelancer three provisions do the work.

Section 2(1) is absolute: a person cannot, by any contract term or notice, exclude or restrict liability for death or personal injury resulting from negligence. No reasonableness argument is available. Section 2(2) covers other loss or damage from negligence, which can only be excluded or restricted so far as the term satisfies the requirement of reasonableness.

Section 3 is the provision most likely to help you. It applies where one party deals on the other's written standard terms of business, meaning terms the client uses more or less automatically across deals of that type, rather than a contract drafted for your project alone. There is a catch worth knowing: if you negotiate substantial amendments, the contract may stop being "standard terms" and section 3 may fall away with it. Whether it applies is decided on the facts of each case. In that situation the client cannot, by any contract term, exclude or restrict liability for its own breach, or claim to be entitled to render substantially different performance or no performance at all, except so far as the term satisfies the requirement of reasonableness.

Section 11 sets that test: the term must have been a fair and reasonable one to include, having regard to circumstances known or in the contemplation of the parties when the contract was made. That timing matters. A clause is not judged by how harsh it turns out to be after a dispute, but by whether it was reasonable to put in the contract in the first place.

Section 11 has two more parts that bear directly on caps. Where a clause limits liability to a fixed sum of money, section 11(4) says regard must be had in particular to the resources the party relying on the cap could expect to have available to meet the liability, and how far it was open to that party to cover itself by insurance. Those factors weigh against a large, well-insured client that caps its liability to you at £500, and in favour of a sole trader who caps at the value of the job. Section 11(5) then puts the burden on the party relying on the clause to show that it is reasonable. You do not have to prove that it is not.

Two practical consequences. First, if you are signing the client's standard document, an aggressive cap on their liability is not automatically binding on you. Second, the same protection does not run the other way in the same form, so a limitation you accept on your own liability is largely a matter of what you negotiated.

Limitation of liability: a reasonable version vs an aggressive one

What to push back on before you sign

• Ask for mutuality first. The same cap on both sides is the easiest change to justify and the most valuable.
• Pull the indemnity inside the cap. If only one edit is possible, make it this one.
• Get the word "aggregate" written in. If the clause does not say whether the cap counts per claim or in total, ask for one cap covering all claims. Example 2 above shows what that is worth.
• Keep your fees outside the cap. The clause should say the cap does not apply to the client's obligation to pay you, so a cap set at "fees paid" can never be read as a limit on what the client still owes.
• Check the carve-outs against the mandatory list. Death, personal injury from negligence and fraud should be named as unlimited. If the clause tries to cap them, treat that as a signal about the whole contract.
• Trim the excluded losses. Push back if the exclusions are so broad that the cap has almost nothing to bite on.
• Line the cap up with your insurance. If you are required to hold cover of a certain level, a cap far above it leaves you personally exposed for the difference. Match the basis as well: a per-claim cap in the contract can outrun a policy written "in the aggregate".

If the client resists, our guide on how to negotiate a freelance contract in the UK covers how to raise these changes.

If you want to know whether a liability cap in your contract actually reaches the indemnities, upload the agreement to Ookulli and it will map what is capped, what is carved out, and what a fairer version looks like, with each point traced back to how UK law reads it.

This page is general information, not legal advice. It describes English contract law as it applies in England and Wales; Scots law takes its own approach. For a high-value contract, or where the carve-outs leave you exposed, speak to a qualified solicitor.