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Business ‘Common Sense’ Important When Courts Interpret Limited Liability Clauses

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A recent UK High Court decision, (Polypearl Ltd v E.On Energy Solutions Ltd), emphasized the importance of business common sense in interpreting a limitation of liability clause. The question was whether the words “Neither party will be liable to the other for any indirect or consequential loss, (both of which include, without limitation, pure economic loss, loss of profits, loss of business, depletion of goodwill and like loss) howsoever caused..” excluded liability only for indirect loss, and not for direct loss of profits. The court held it did not exclude liability for direct loss. The article notes that “clear express words must be used in order to rebut the presumption that neither party intends to abandon any remedies for a breach of contract arising by operation of law”, especially not for a loss of profits directly caused by a failure of the customer to purchase the quantity of goods specified in the agreement.

Read the article here.

 

Take away:

  • When interpreting a specific clause, courts will consider the amount of care and detail used in the drafting of the clause. Courts will also consider ‘business common sense’ when interpreting a game-changing clause, such as a limitation of liability clause.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Has the Particular Liability Been Specifically Assumed, Excluded or Not Mentioned in the Apa?

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Both vendors and purchasers have a strong interest in ensuring that the ownership of all liabilities has been clearly allocated by the APA. The parties should address the question: If the liabilities assumed (or excluded) have been listed, what is to be presumed about the liabilities which have not been listed? Are they to be included (pro-vendor) or excluded (pro-purchaser) from the assets transferred by the APA?

This article explains buyer and seller strategies with respect to liabilities. When drafting an asset purchase agreement, the buyer will likely negotiate for narrow assumed liability and broad excluded liability. That is they will only agree to assume liability in certain circumstances and will exclude liability broadly to include all liabilities other than those expressly assumed by the buyer. The seller on the other hand wants the buyer to assume as many liabilities as possible so broader assumption language favours the seller.

Read the article here.

Take away:

  • Parties should clearly identify which party will be responsible for unlisted liabilities.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Planning is Required to Ensure that the Consulting Agreement Contains Only Consultant-Friendly Indemnification Provisions

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Indemnities originated in the construction industry where contractors had complete control of the job site, and owners required them to be responsible for any site-related problems that arose. However, the concept has been extended in the construction industry to engineers and architects who have little or no control over the job site. This increase in liability has little to do with professional competence, resulting in risk exposure which is largely uninsurable. How can engineers and architects (and any other consultants involved) reduce their risk under indemnity clauses if the client insists on including such a clause in the consulting agreement?

This article suggests various strategies, including three different types of indemnity clauses: the mutual indemnity; the insurable indemnity; and third party indemnities. The mutual indemnity requires each party to indemnify the other party (only) for its own negligent acts. The insurable indemnity requires the consultant to indemnify the client for negligent acts “in performance of professional services under this Agreement”. The third party indemnities are requirements that others on the job site (contractors, suppliers etc.) be required by their contracts to indemnify the consultant and the owners from any 3rd party claims, and to carry adequate insurance.

Finally, the article suggests including client indemnification obligations for costs resulting from hazardous worksites, and unauthorized use of copyrighted drawings.

Draft language for each type of indemnification is included.

Read the article here.

Take away:

  • Consultants must be careful not to agree to indemnity clauses which burden them with uninsurable risk. Ideally, the client will also be subject to indemnification obligations.

 

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This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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