Ruling on Watford Electronics v Sanderson CFL, the court decided to restrict Sanderson's liability to the value of the £100,000 financial system it had provided for its customer. Watford had been seeking £5.5m in damages after the system failed to meet its requirements.
In an initial hearing, the Technology and Construction Court had come down in favour of Watford, despite clauses in the contract limiting liability to the price paid for the system and excluding indirect losses.
But this week Lord Justice Chadwick ruled that: "Where experienced businessmen representing substantial companies of equal bargaining power negotiate an agreement, they should be taken to be the best judges of its commercial fairness." He added that a court should be cautious to substitute its own judgement for that of the parties to a contract.
In three earlier cases, South West Water v ICL, Pegler v Wang, and Horace Holman v Sherwood International, the courts used the provisions of the Unfair Contract Terms Act (UCTA) 1977, to overturn limited liability contract clauses.
Commenting on the case, specialist IT law firm Masons warned that a practice had emerged in software sales of customers ignoring limited liability clauses in suppliers' standard terms in the hope that the clause would be ruled unenforceable under the UCTA.
"Users who may have been advised to keep silent when faced with these clauses should now reconsider their strategy," said George Wheeler-Carmichael of Masons.