Contracts: Can you exclude liability?

Liability for damage can lead to high compensation payments. Is it possible to exclude liability completely, or can it merely be limited? And what measures do you have to take to do so?

This is one of the most common questions we are asked by entrepreneurs. The question is obvious, as liability for damage can lead to high compensation payments. So is it possible to exclude liability completely, or can it merely be limited? And what measures do you have to take to do so?

In contracts you can lay down what you will or won’t be liable for. As it is inefficient to negotiate each contract separately, General Terms and Conditions are an efficient solution for standard limitations.

The exoneration clause

A clause included in the General Terms and Conditions which limits or excludes liability is called an exoneration clause. An exoneration clause must be drawn up correctly and its content has to be accurate as well. Otherwise, there is a high risk that the clause will not be (fully) valid and thus liability would not be excluded after all.

The requirements for an exoneration clause are (partly) stipulated by law:

• The counterparty must be familiar with the exoneration clause. After all, it is not possible to bind someone to a unilateral notification without the person’s consent. Therefore, if an exoneration clause is included in the General Terms and Conditions, the counterparty must have accepted the General Terms and Conditions.
• The exoneration clause cannot be in breach with the law (mandatory law), public order, or public morals. Therefore, an exoneration clause may, for instance, not exclude intent or recklessness.
• There must not be abuse of circumstances (for instance, a monopolist who enforces such a clause) or a clause that is in breach with the principles of reasonableness and fairness.

In order to assess the validity of an exoneration clause, the Court will not just consider the statutory requirements but also the circumstances of a specific situation. For instance,

• The formation of the contract or the General Terms and Conditions containing the exoneration clause. Regarding an extensively negotiated contract, chances that the exoneration clause will be valid are higher.
• The capacity of the counterparty: in the case of a consumer, an exoneration clause can be declared void unless you, as the professional party, can demonstrate that the clause is not unreasonably onerous in the circumstances at hand.
• The extent to which liability is limited. A limitation of liability is more likely to be upheld than an exclusion of liability.
• The extent to which the party evoking the exoneration clause has failed in the performance of care that could be expected from him or her.

Conclusion

An exoneration clause can limit your liability extensively, provided that certain requirements are met. A clause that limits liability to too great an extent can be declared void. By this you will also be held liable for matters you could have excluded.

Action

If you intend to exclude liability, you will have to take the following steps:

• Draw up a clear exoneration clause focusing on your particular situation.
• Let someone check whether your exoneration clause is valid.
• Include the exoneration clause in your General Terms and Conditions or draw up (new) General Terms and Conditions.
• Make sure the counterparty accepts the General Terms and Conditions.
• Call on your General Terms and Conditions if you are held liable.

In the event an exoneration clause is invoked, check whether all (legal) requirements have been met and if the exoneration clause may be declared void.

More information

Would you like to know more about the exclusion of liability, drafting contracts and/or General Terms and Conditions? Please contact:
Reinier W.L. Russell, LL.M. (reinier.russell@russell.nl).