Limitation of liability clause (UK): what the cap 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.
• 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.

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 — 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.

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.
• 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.

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.