In the world of commercial contracts, limiting liability isn’t a legal box-tick – it’s a strategic must. Whether you’re thrashing out a SaaS agreement, supplier contract or consultancy terms, clear, commercial liability clauses help set the ground rules if things go south.

But too often, they’re either overreaching and unenforceable or vague and unfit for purpose. Here’s how to get them right.

Let’s start with the basics: what are exclusion clauses?

Exclusion clauses help set the boundaries of responsibility. You’ll usually see them pop up in high-value, high-risk contracts – especially when the stakes are financial, reputational, or both. Here are a few types to keep in your toolkit:

• Absolute exclusions – e.g. “Party A shall not be liable for any damages.” These tend to raise red flags and rarely hold up in court.
• Limitation clauses – cap liability to a specific amount, like “Liability shall not exceed £10,000 per incident.”
• Time-bar clauses – reduce the time a party has to bring a claim (e.g. shortening the statutory six-year period to two years).

What’s the catch? UCTA and the reasonableness test

Even in business-to-business contracts, the Unfair Contract Terms Act 1977 (UCTA) still bites. It says liability clauses must be reasonable – judged at the time of the deal, based on what both parties knew (or should’ve known).

The courts will look at things like:

• Bargaining power – did one side clearly have the upper hand?
• Clarity – were the clauses easy to find and understand?
• Market norms – are similar exclusions common in your sector?
• Insurance – who was better placed to cover the risk?

In short: if your clause is one-sided, vague or buried in the fine print, it might not survive a challenge.

Drafting tips to keep you out of hot water

When you’re juggling dozens of contracts, it’s easy to lean on templates. But liability clauses should never be left on autopilot. A few ways to get them right:

• Be specific – tailor your clause to the risk, not just the boilerplate.
• Avoid catch-alls – overly broad exclusions are legally shaky and commercially off-putting.
• Signpost clearly – highlight key limitations with bold text, headings or summaries.
• Keep an audit trail – record the conversations and context that led to the final wording.
• Check incorporation – don’t let your clause get lost in an unsigned schedule or mismatched Ts&Cs.

Where we see it go wrong

Even well-meaning contracts can fall short. A few pitfalls to watch for:

• Conflicting liability caps across engagement letters and main agreements.
• Excluding loss of profits – even when those profits are the heart of the deal.
• Operating on expired or informal contracts, where terms technically no longer apply.

What courts care about (and so should you)

Judges are increasingly sympathetic to clearly explained, fairly negotiated clauses – especially in user-friendly formats. Think: summary boxes, tooltips, and plain-English drafting. That’s especially true in fast-paced, tech-heavy industries like SaaS.

Ultimately, they’ll ask:

• Was the clause discussed and negotiated?
• Does it reflect a fair sharing of risk?
• Does it make sense in the commercial context?

If the answer’s yes across the board, it’s more likely to hold up.

Final thought: It’s not about dodging risk – it’s about managing it

The best exclusion clauses don’t just protect you when things go wrong – they help shape better commercial relationships from the start. And they’re not set-and-forget. If your business evolves, your liability terms should too.

If you’re handed a clause that feels unbalanced or unreasonable? Don’t be afraid to challenge it. Courts know not every deal is struck between equals – and they’ll step in if the scales are off.

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