Limitation of liability clauses in T&L contracts

By: Scott Alden and Jarrad McCarthy


Making sure they are right and effective is crucial for exclusion of liability clauses, legal advisers say

Limitation of liability clauses in T&L contracts
Holding Redlich partner Scott Alden.

 

Parties to transport projects are, as a general rule, free to agree and allocate their respective risk and liability through their agreement and, specifically, the limitation on liability, exclusion of liability clauses and indemnity clauses. 

Exclusion clauses are found in contracts throughout the transport industry but they are not always effective and need to be drafted very carefully in order for them to successfully exclude liability, otherwise a party may find itself carrying risk and liability it did not expect.

Transport and logistics contracts such as supply contracts, services contracts, availability-based contracts, freight and haulage contracts, contracts for loading and unloading, design and construction contracts, leases and licences all include mechanisms to allocate risk in contracts.

These are far reaching and include:
• overall limitations of liability for all potential claims under a contract, or in relation to a project, to the value of the contract itself
• a blanket exclusion of liability for ‘consequential loss’
• a limit on a party’s exposure to liquidated damages for late delivery, late arrival or late completion
• capped exposure to performance based key performance indicator abatement regimes
• defining and excluding liability for all ‘consequential loss’.

The High Court has recently raised some issues and provided some guidance about the extent to which exclusion clauses can be relied upon, as well as confirming the way in which they are interpreted.

That is, unless the clause is carefully drafted, and precisely covers the liability it is seeking to limit or exclude, it will fail.

Lessons for the transport industry

It is likely that your contract will contain clauses seeking to disrupt the general common law position on allocation of risk and liability.

This may be through a limitation or exclusion of liability, particularly in relation to consequential loss, an agreed level of liquidated damages or loss for agreed and specified breaches (such as late completion or incomplete supply), or an indemnity where one party takes on the liability of another through contract.

No matter which of these apply, and they are all very common in Transport and Logistics Contracts, they will be strictly interpreted and where there is ambiguity, applied against the party that would otherwise take the benefit of them.

Contracting parties should obtain legal advice when drafting, negotiating or agreeing to commercial positions relating to allocation, limitation and exclusion of liability to ensure that their intentions are properly reflected in the agreement and that the agreement they think they have reached is enforceable in court if challenged.

Scott Alden is a partner and Jarrad McCarthy a paralegal at Holding Redlich.

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