Limitation of liability clause in the UK: caps that hold

Sample clause

Written for a software services agreement between Fenwick Data, a fictional Newcastle software supplier, and a regional housing association customer.

Limitation of Liability. (a) Subject to paragraph (d), each party's total aggregate liability arising under or in connection with this agreement, whether in contract, tort (including negligence), breach of statutory duty or otherwise, is limited to the greater of £500,000 and 125% of the Charges paid and payable in the 12 months before the event giving rise to the most recent claim. (b) Subject to paragraph (d), the Supplier's total aggregate liability for breach of clause 14 (Data Protection) is limited to £2,000,000, and that liability does not count towards the cap in paragraph (a). (c) Amounts paid under paragraph (a) reduce the amount available for later claims. (d) Nothing in this agreement limits liability for death or personal injury caused by negligence, for fraud, or for any liability that cannot lawfully be limited.

Sample wording, not legal advice.

Variants

What to negotiate

• One cap or several

  In Drax Energy v Wipro, a clause saying total liability for all claims would not exceed 150% of the preceding year's charges was read as a single aggregate cap of about £11.5 million, not a cap per claim as Drax argued. The lesson is to say plainly which is meant. Customers wanting per claim protection must write it in, and suppliers wanting an aggregate cap should use the words total aggregate liability for all claims.

• Reasonableness under UCTA

  Where the cap is in one party's standard terms, or limits negligence liability, it must be reasonable. Section 11(4) of UCTA asks about the resources the party had to meet the liability and whether it could have insured. A cap far below the supplier's insurance, or a token figure on a large contract, is the type most at risk. Linking the cap to fees and insurance cover helps.

• Separate caps and carve outs

  Data protection breaches, IP infringement indemnities and confidentiality breaches can cost far more than ordinary breaches, so customers often ask for them to sit outside the main cap or under a higher one. Suppliers usually accept a separate, higher cap rather than unlimited liability. Check how the caps interact: whether claims under the special cap also use up the general one.

The risk of leaving it out

With no cap, a supplier's exposure is limited only by the rules on remoteness of damage, so a fault in a modest software contract could expose it to the customer's entire business losses. For customers, an absent cap can look like an advantage, but suppliers without one often price the risk in or refuse to contract. A clear cap is usually better for both than a fight about remoteness later.

Three cap shapes, one worked example

Suppose a contract pays £400,000 a year and three claims arise over three years: £300,000 in year one, £250,000 in year two and £200,000 in year three. Under a single aggregate cap of £750,000, the first two claims are paid in full and the third only up to £200,000, so the full total of £750,000 is recovered and nothing remains. Under a per claim cap of £250,000, the first claim is cut to £250,000 and the others paid, giving £700,000. Under a per year cap of 100% of annual charges, each claim fits within its year's £400,000 and all £750,000 is paid. The shape changes the result even when the headline figures look similar. Law checked on 21 October 2026. This page explains how the clause works and is not legal advice.

Why the sample uses the greater of two figures

Tying the cap only to fees paid can produce a tiny cap early in a contract, when little has been paid but a lot of work is at stake. The sample sets the cap at the greater of a fixed sum and a percentage of the last 12 months' charges, so it never falls below £500,000 and grows with the contract. Measuring the 12 months before the event giving rise to the most recent claim, rather than the first, avoids an argument about which period applies when claims arrive over time.

What cannot be capped

Liability for death or personal injury caused by negligence cannot be limited, under section 2(1) of UCTA, and English law does not allow a party to limit liability for its own fraud. The sample's paragraph (d) states those exceptions so the clause never overreaches. Against consumers, the Consumer Rights Act 2015 applies instead and is stricter. The Australian drafting, including the effect of the Australian Consumer Law, is on the parent limitation of liability page.

Insurance and the cap

A cap is only as good as the money behind it. Suppliers should set the main cap at or below their professional indemnity and public liability cover, and check whether the policy limit is per claim or aggregate, so the contract and the policy match. Customers can ask for evidence of insurance and an obligation to keep it in force for the life of the contract and some years after.

Documents that carry this clause

Master services agreementA data consultancy and an insurer sign this once and then buy work under it for three years. It is the rare contract whose whole purpose is to make the next twenty contracts short.Software development agreement with sprints and an acceptance testCustom software goes wrong in the space between delivered and accepted, where one side thinks a sprint is finished and the other is still writing a list. This agreement fixes a ten business day acceptance window against criteria written before the sprint started, and assigns the intellectual property sprint by sprint as each invoice is paid.Consulting agreementAn advisory firm reviews three bakeries over seven weeks. What makes this agreement useful is not the fee clause but the two clauses that say what the advice is not.

Questions people ask