Glossary

Liability cap

A liability cap is the maximum amount one party can be asked to pay the other under a contract.

A liability cap limits how much a party can be asked to pay if something goes wrong. It is commonly set as a fixed sum or linked to fees, such as the fees paid in the previous 12 months.

Caps usually come with exceptions. Some liabilities sit outside the cap by agreement, such as fraud, breach of confidentiality or certain indemnities. Others cannot be limited at all by law. In England and Wales, the Unfair Contract Terms Act 1977 says liability for death or personal injury caused by negligence cannot be excluded or restricted, and other negligence liability can be limited only so far as the term is reasonable.

Caps are often mutual, but not always. A supplier taking on a small project for a large client commonly asks for a cap tied to the fees.

Example

A studio's contract caps its total liability at the fees paid in the 12 months before a claim, with fraud left uncapped.

What the legislation says

  • 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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