Excluding compo risk
7 April 2009,
WITH increased numbers of suppliers failing in their projects, exclusion clauses in contracts are now more relevant than ever for businesses seeking compensation.
McCullough Robertson Lawyers partner David Downie (pictured) says exclusion clauses can limit the amount of compensation if suppliers don’t deliver, and can exclude certain categories of loss from recovery altogether.
“As a matter of contract they are simply taking the supplier on trust,” says Downie.
“If a business simply signs a supplier’s contract then in most cases their ability to claim damages from the supplier should things go wrong will be effectively removed,” he says.
Businesses need to insist on sufficient warranties and obligations, as the fine details of contracts will become very important when the allocation of risk is considered in court.
Downie says at the moment suppliers are more willing to take on that risk as well.
“You need to get it right at the time the agreement is entered into - paradoxically, suppliers are more willing to take on contractual risk in harder times as they are more desperate to do the deal,” he says.
As a general rule businesses should look out for liability caps that are too low and loss exclusion clauses that are too broad.
“Businesses should also consider removing certain categories of loss from the operation of the clauses. For example, liability in relation to personal injury, death, property damage and intellectual property infringement would ideally not be limited,” says Downie.