As a business it is understandable that you might wish to exclude your liability in certain circumstances. However, affording your business such protection within commercial contracts can be difficult.
Scottish Power: recent case law
The case of Scottish Power UK Plc v BP Exploration Operative Company Ltd  EWHC 2658 has highlighted the difficulties that businesses can experience when seeking to limit liability.
The contract in question, which was for the purchase of gas, included a limitation of liability clause and a sole remedy clause. The limitation clause aimed to prevent either party from being liable to the other for certain losses, even if they are caused by negligence. The sole remedy clause provided for the delivery of “Natural Gas” at “the Default Gas Price” as the only compensation mechanism.
The seller (BP) was meant to deliver gas to Scottish Power, but failed to do so, breaching the contract. Scottish Power had to source its gas from elsewhere at a higher price and tried to claim the difference in price, i.e. its loss, back from BP. BP argued that the sole remedy clause provided the sole remedy for the breach and refused.
In the High Court, the judge did not think that the exclusion clause covered “basic, normal losses” such as the difference in price from an alternatively sourced product in the event of a failed delivery. If the clause did intend to exclude any “basic, normal loss”, it would consequently exclude all loss which, the judge noted, would be “a perverse idea”. However, the judge agreed that the sole remedy clause was the only remedy for a breach of contract.
When drafting contracts the aims and intentions for each clause need to be carefully considered in conjunction with business insight to ensure that the contract provides for what it is intended to.
Instead of a total and complete exclusion of liability, it is sometimes a good compromise to insert a cap on liability or a sole remedy clause, to limit potential liability to a level that your business believes (and a judge is likely to believe) to be reasonable.