During protracted contract negotiations, the business owner will switch off from the negotiation, take out his or her Blackberry and use the time to catch up on unread emails and leaving this issue to be fought by his/her lawyer. However, it must be understood by the business that the contract in question is the busiiness contract and does not exist in a vacuum and has its own risk profile. If the business fails to back-off its liability adequately in this contract, it clearly runs a risk that it will be exposed and not effectively managing the risk. Business owners, directors and commercial managers can learn more by attending Anassutzi & Co Drafting Commercial Contracts seminar which gives at an affordable price all the necessary tips and hints for you to do your job plus lots of checklists and other materials

Therefore businesses must fully understand the effect of a limitation of liability clause and take an active role in determining its content. One way to do so is rather than focus on the loss that is to be excluded, to identify, in words which describe the commercial reality, those losses which are fundamental to its business case and which it believes should be recoverable in any event.

Put simply, the business should ask itself two questions: What loss will I suffer if something goes wrong under the contract? Can I expect to recover some or all of this loss?

Once the business has identified the actual losses it hopes to recover under the contract, these should be set out in a separate "inclusion" clause and acknowledged as recoverable in any event.A well-drafted inclusion clause can also specifically identify the heads of loss for which a party can be said to have "assumed responsibility".  If you want to find out more about limitation of liability you can attend Anassutzi & Co Drafting Commercial Contracts seminar which gives at an affordable price all the necessary tips and hints to drafting a limitation of liability clause plus lots of checklists and other useful materials.

The remainder of the limitation clause should still, at its core, distinguish between direct and indirect (or consequential) loss. These are concepts which, if not always predictably applied, are at least supported by a significant case law. Should a dispute arise over the loss that is recoverable under the contract, the traditional arguments as to whether such loss is direct can be relied on in conjunction with the inclusion clause.

The sensible use of financial caps, applied both globally to the contract as a whole, as well as individually, where appropriate, in relation to specific heads of loss, will assist the parties in reaching a fair compromise. In the context of a traditional customer/supplier relationship, the customer can take comfort from the fact that it is certain to recover at least a proportion of the defined included "high risk" losses it has identified. The supplier is protected, in that its exposure to each identified loss is clearly defined and capped.

Businesses should seek to achieve a fair allocation of the risk associated with contractual breach. When viewed as a commercial discussion around allocation of risk, a liability inclusion clause, with appropriate financial caps for each identified area of loss, will result in both parties assuming commercially appropriate levels of responsibility for contract failure. Should all liabilities be capped financially?

In the current economic climate, it is not unheard of for a party simply to walk away from a contract in which its liability is capped, taking the view that a quantifiable claim for damages against it is a better commercial option than being bound under a contract which it now believes to be a bad bargain. The parties should expressly remember that certain liabilities cannot be capped. To find out more about this and other business critical topics you can attend Anassutzi & Co Drafting Commercial Contracts hands-on seminar.