The £200k Question: What does "12 months of fees" really mean in a liability cap?

We've all been there. Reviewing yet another SaaS agreement at speed. Everything seems market standard. Then your eye skims over the liability clause:

"The liability of Vendor... shall not exceed the fees paid by Customer to Vendor during the 12-month period immediately preceding the claim."

Looks reasonable, right? A typical 12-month fee cap. Standard stuff.

But pause.

That neat little phrase can carry more ambiguity than you think. And if you're not careful, it could be a trap door - one that opens just when the business needs clarity most.

What does "12 months of fees" actually mean?

This cap looks clean on the surface - it ties liability to the amount the customer paid in the 12 months before the claim.

But here's the rub: without extra language, it's unclear whether it means:

• A moving cap - resetting based on when each claim is made.
• A single cap for all claims - across the life of the contract.
• A per-claim cap - giving the vendor a new limit for each dispute.

Each interpretation tells a different story about risk.

And unless the clause spells it out, both sides might read it differently - until it's too late.

The importance of what's not written

A recent High Court case hammered this home.

In Tata Consultancy Services Ltd v Disclosure and Barring Service, the court was asked to interpret the meaning of liability caps in a tech contract gone wrong. The software didn't work as promised. DBS terminated the contract. TCS argued its liability was capped. DBS disagreed.

The clause in question looked "standard". But the court found the language was ambiguous - and crucially, it didn't include clear wording to confirm whether the cap was aggregate or per-claim. That lack of clarity opened the door to interpretation, and the court leaned towards a more generous reading for the customer.

Key takeaway: courts will take a hard look at limitation clauses when disputes arise - and vague drafting might not offer the protection you think it does.

Spotting (and fixing) the gaps

Here's what to watch for - and how to strengthen the clause:

1. No reference to "aggregate liability"?

If the clause doesn't say it applies to the aggregate liability or all claims, it may be interpreted as a per-claim cap. That could expose the vendor to multiple claims each capped separately - a serious risk for them.

Fix: Add language like "in the aggregate" or "for all claims arising under or in connection with the agreement."

2. No time limit for when claims can be made?

The clause references a 12-month fee window - but doesn't limit when claims can arise. That can lead to odd results. For instance, a claim two years after termination might reference £0 paid in the prior 12 months - effectively zeroing out liability.

Fix: Ensure the clause makes sense post-termination - or tie liability to fees paid during the term of the agreement, not just before the claim.

3. Revenue-based cap without floor?

If the vendor gets paid a small amount over a long period, the cap could be minuscule even for a serious breach.

Fix: Vendors might push for a minimum cap or fixed amount to avoid this issue.

Why this matters for in-house lawyers

As in-house counsel, you're under pressure to move fast. You're expected to sign off on contracts quickly, with a commercial mindset. And yes, sometimes you've seen that same cap dozens of times before.

But this is a classic "read it like a lawyer, interpret it like a businessperson" moment.

Here's how you can bring clarity and confidence:

• ‍Ask the right questions: Is this cap aggregate or per-claim? Does it apply to all causes of action? What happens post-termination?
• ‍Push for clearer drafting: Vendors and customers alike benefit from certainty.
• ‍Don't assume standard = safe: Even market standard clauses can have holes.

Final thought: Words matter

When things go wrong - and in tech deals, sometimes they do - the court won't ask what you meant the clause to say. They'll ask what it does say.

So take a moment. Add the missing words. And protect your business from a six-figure surprise.