The introduction of the Consumer Rights Act 2015 has made some fundamental changes to the provision of both goods and services. Is it still possible to limit your liability to clients in the event of a negligence claim?
S.57(3) of the CRA 2015 states that a contract to supply services '... is not binding on the consumer to the extent that it would exclude the trader's liability arising under section 49 (service to be performed with reasonable care and skill).' In other words, you cannot limit your duty in this regard and cannot impose a clause which would prevent a client from bringing a claim in negligence against you. Such a limitation would in any event be a breach of the principles governing lawyers' conduct. This does not prevent you from attempting to cap the possible financial loss from any negligence nor from trying to restrict potential areas of claim.
The underlying principle will be, as it has always been, one of fairness and again this is in line with the requirements of the Code of Conduct. If you are drafting a limitation clause, how would it stand up to examination by a court? Can you show that it is reasonable, that your client fully understood it and agreed to it from a position of strength?
Five things to remember when seeking to restrict liability
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Be clear about the work to be undertaken
It has always been important to have a clear retainer, and this is your strongest defence against any claim. A vague or uncertain retainer could leave you being held liable for work outside your contemplation, and in these circumstances any attempt to limit financial liability could be ineffective. -
Ensure you have sufficient PI cover in place
Using a limitation clause is unlikely to have any impact on your indemnity premium - the validity of such clauses is uncertain and a majority of claims fall within the minimum sum insured, and liability cannot be capped below this figure. An effective limitation clause can give you an additional line of defence in the event of a very large claim but don't rely on this – make sure you are buying the right level of cover for your firm. -
Make a realistic assessment of potential liability
If a clause is to succeed it must be proportionate so look at both the value of the transaction and the potential loss when reaching a figure. You need to be able to give reasons for the sum at which you want to cap liability, both when discussing it with your client and if it is challenged in future. -
Draft carefully
Clauses don't need to be complex and elaborate drafting is not going to help if the clause doesn't achieve your objective. As with any drafting, try to envisage possible scenarios in which the clause might be tested and check that it would stand up to these. To be effective, any clause must clearly be incorporated into your contract with the client so make sure that it clearly forms part of the retainer.
5. Obtain your client's consent
The strongest clause is one that your client has agreed to from a position of full knowledge.Make sure that you have a record of the discussions and be willing to negotiate the terms if appropriate.If a limitation clause is found to be void, the remainder of the contract will still stand but the court is not at liberty to impose a different 'cap' on the loss – if your firm has been found to be negligent and the clause fails, then the whole of the loss would be payable.
The safest course will always be to have a clear and specific retainer which identifies the work being done, to maintain good communication with the client and to have proven systems in place to minimise risk overall. While it is possible to propose a cap on liability it would be unwise to rely on this as a major armament in your risk management defences.
Resources available from Lockton
For more detail, including example clauses, see our guidance note on 'Limiting Liability, which you can download using the link below.