Clause library

Limitation of liability clause, explained

A limitation of liability clause caps how much one party can recover from the other and lists the kinds of loss that cannot be claimed.

What does a limitation of liability clause do?

A limitation of liability clause sets the most each party can be asked to pay if things go wrong. It usually does two things. First, it sets a cap, often linked to the fees paid under the contract. Second, it excludes certain kinds of loss, commonly indirect loss and loss of profit. Some liabilities usually sit outside the cap, such as fraud or breach of confidentiality. In England and Wales, the Unfair Contract Terms Act 1977 says liability for death or personal injury caused by negligence cannot be excluded, and other negligence liability can be limited only so far as the term is reasonable.

Example wording

Example · our own drafting

Each party's total liability arising under or in connection with this agreement will not exceed the fees paid or payable in the [12] months before the claim arose. Neither party will be liable for indirect or consequential loss or loss of profit. Nothing in this agreement limits liability for death or personal injury caused by negligence, or for fraud.

In Plain English

The most either side can be asked to pay is what the client paid, or owed, in the 12 months before the problem. Neither side pays for knock-on losses or lost profit. The cap does not apply to death or injury caused by carelessness, or to fraud.

What do people negotiate in a limitation of liability clause?

  • The size of the cap and whether it is a fixed sum or a multiple of fees.
  • Which liabilities sit outside the cap, such as indemnities or data breaches.
  • Whether loss of profit is excluded entirely or only when it is indirect.
  • Whether the cap applies per claim or to all claims together.
  • Whether the cap is the same for both parties.

Which contracts include it?

Lex includes this clause in, among others:

  • Services agreement (MSA)
  • Freelancer agreement
  • Consulting agreement
  • Retainer agreement

What does the law say?

  • Liability for death or personal injury caused by negligence cannot be excluded or restricted by a contract term; other negligence liability can be limited only so far as the term is reasonable. Consumer contracts are carved out to the Consumer Rights Act 2015, whose s.31 lists liabilities a trader cannot exclude in contracts for goods.

    Source: Unfair Contract Terms Act 1977, s.2Checked 7 October 2026Pending lawyer review

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Frequently asked questions

What is a limitation of liability clause?

It is a clause that caps how much a party can be asked to pay under the contract, and usually excludes some kinds of loss, such as indirect loss or loss of profit.

Can you exclude all liability in a contract?

Not entirely in England and Wales. The Unfair Contract Terms Act 1977 says liability for death or personal injury caused by negligence cannot be excluded, and other negligence liability can only be limited so far as the term is reasonable.

What is a typical liability cap?

Many services contracts link the cap to fees, commonly the fees paid in the previous 12 months or the total contract value. The right figure depends on the deal and the risks involved.

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