Suppliers win protection from damages claims - court judgement

Tony Collins

A ruling by the Court of Appeal has upheld the right of suppliers to limit claims for damages after a failure.

Legal newsletter Shadbolt Law says the ruling has a particular significance for the IT industry.

It is common for IT suppliers to havean exclusion clause in contracts to protect them fromclaims from users after a serious failure.

The clause usually says that the supplier is not in any circumstances liable for loss of business, loss of profits, loss of anticipated savings, loss of or damage to data, third party claims or any consequential loss.

Sometimes the clauses are challenged in court - they should pass a test of "reasonableness".

Now the Court of Appeal ruling suggests that suppliers can have confidence in correctlyframed exclusions of financial loss. 

Shadbolt Law says in its latest technology law update that the ruling means users will have the choice of either attempting to amend the standard exclusion clause significantly and/or taking out appropriate insurance to cover any potential irrecoverable losses.

"The ruling continues a striking trend in which the courts have been keen to enforce standard contractual exclusion/limitation clauses which have been freely entered into between the parties, reversing the prior approach of the courts.

"For suppliers, the decision is undoubtedly good news and means that correctly framed exclusions of financial loss can be relied upon with confidence whilst, for their clients, it means that users will have the choice of either attempting to amend the standard clause significantly and/or taking out appropriate insurance in order to cover any potential irrecoverable losses," Shadbolt Law said.

The court's ruling was over a case, Regus (UK) versus Epcot Solutions, which was brought after the failure of air-conditioning equipment. The appeal court ruled that Regus's exclusion clause was reasonable.

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Photo from Rex Features

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