Contract drafting: limitation of liability

1. 1 of 5

   Allocation of risk

   Whether the cap is coherent, and whether it matches the commercial bargain the agreement describes.

   1 Not yet competent

   No monetary cap is stated, or the cap is expressed in terms that cannot be calculated from anything the agreement defines. The clause limits liability for the central obligation the contract exists to perform, so the party protected owes nothing that can be enforced against it.

   2 Developing

   A cap is stated and can be calculated, but its size bears no stated relationship to the fees, the term, or the exposure described elsewhere in the agreement. The limit runs one way where the obligations are mutual, and nothing in the draft indicates that this was a decision.

   3 Competent

   The cap is calculable from figures the agreement itself defines, and its size is proportionate to the fees and the term. Where the cap protects one party only, that is consistent with the obligations each party carries. Larger exposures such as data loss or third party claims are either brought inside the cap or given a limit of their own.

   4 Strong

   As competent, and the draft separates risk by category: a general cap, a higher sub cap where exposure is larger, and unlimited liability for risks the party can control. A reader can tell which risk sits with which party, and the clause says why each limit is set where it is.

2. 2 of 5

   Enforceability under Indian law

   Whether the exclusions are effective under the Indian Contract Act 1872 and stated statutory limits.

   1 Not yet competent

   The exclusions are drafted against a legal framework that does not apply, and no governing law is identified. Liability that cannot be excluded is excluded outright, and there is no savings provision of any kind.

   2 Developing

   A savings provision is present but is stated only in general terms, such as liability that cannot be excluded by law, without naming what is preserved. Remoteness of damage is addressed through imported categories rather than by reference to section 73 of the Indian Contract Act 1872.

   3 Competent

   The savings provision names the liabilities preserved, including fraud and fraudulent misrepresentation and liability for death or personal injury. The exclusions are drafted by reference to the governing law, and each limb stands on its own so that one being held ineffective does not carry the others with it.

   4 Strong

   As competent, and the draft anticipates the argument that would be run against it. It addresses recoverable loss under section 73, and the treatment of any stipulated sum under section 74, and the severability of the clause is drafted rather than left to a general provision elsewhere in the agreement.

3. 3 of 5

   Internal consistency

   Whether the sub clauses work together, and whether defined terms are used consistently across them.

   1 Not yet competent

   Sub clauses contradict each other. A liability excluded in one place is accepted in another, or an indemnity elsewhere in the draft imposes an uncapped obligation that reverses the limit this clause states. Defined terms carry different meanings in different sub clauses.

   2 Developing

   There is no direct contradiction, but the relationship between this clause and the other risk provisions is left open. The draft does not say whether indemnities, insurance obligations, or service credits sit inside or outside the cap. Some capitalised terms are used without being defined.

   3 Competent

   Each sub clause states its relationship to the others. The draft says expressly whether indemnities and service credits count against the cap, and in what order sums are applied to it. Defined terms match the definitions clause and are used the same way throughout.

   4 Strong

   As competent, and the cross references are complete and correct, so the clause can be read against the rest of the agreement without ambiguity about which provision governs where two of them could apply to the same loss.

4. 4 of 5

   Drafting clarity

   Precision of language, absence of ambiguity, and absence of surplusage.

   1 Not yet competent

   Sentences run at a length that makes the operative words hard to locate. Triggers such as the date from which time runs, or the period over which fees are counted, are missing or are capable of more than one reading that changes the amount recoverable.

   2 Developing

   The meaning can be worked out, but the reader has to do the work. Long strings of near synonyms are carried without adding anything, and formulations such as arising out of or in connection with appear in some sub clauses and not in others with no apparent reason.

   3 Competent

   Each sub clause carries one idea. Triggers, periods, and measurement dates are stated explicitly. Words that add nothing have been removed, and the operative language reads the same way on a second pass as it did on the first.

   4 Strong

   As competent, and the structure of the clause carries part of the meaning, with the sub clauses ordered from the general limit through the exceptions to the mechanics, so a reader can find the answer to a specific question without reading the whole clause.

5. 5 of 5

   Completeness of standard protections

   Whether the carve outs and mechanics a clause of this type normally carries are present.

   1 Not yet competent

   The clause states a limit and nothing else. There is no savings provision, no carve out, no time limit for bringing a claim, and no mechanic for notifying or handling one.

   2 Developing

   Some standard elements are present, usually a general savings provision and an exclusion of indirect loss. Carve outs that a clause of this type normally carries, such as breach of confidentiality, infringement of intellectual property, and non payment of sums due, are absent.

   3 Competent

   The usual carve outs are present and are named individually. A time limit for bringing a claim is stated, and where an indemnity is given it carries notice and conduct of claims provisions.

   4 Strong

   As competent, and the selection of carve outs is fitted to this transaction rather than copied from a precedent. Anything unusual for a clause of this type is present because the subject matter of the agreement calls for it, and the draft is no longer than it needs to be.

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