Limitation of liability provision in given in clause number 1.15 of FIDIC Red Book (Conditions of Contract for Construction) 2017. Before we discussed the provisions under the clause, let us understand what is limitation of liability in a contract.

What is Limitation of Liability?

Limitation of liability clause protects the contractor or the consultant in the case there is any dispute arises in the contract. It limits the amount; the contractor is held liable and hence it protects the contractor or consultant against excessive losses during any lawsuit.

There may be several events or cases where the client may have held the contractor responsible and claim heavy amount in the form of penalty. Some of the cases are described below:

Breach of Contract: If the contractor or other party do not fulfil their obligations as mutually agreed under the contract.

Misrepresentation: A false claim made by the contractor or supplier about a good or service resulting in the termination of contract.

Negligence: Failure to perform duty with due responsibility and care which causes harm to other party or someone else.

Infringement of Intellectual Property Rights: One party infringing other’s copyright, patent, design or trademark, etc.

Clause No. 1.15, Limitation of Liability

Neither Party shall be liable to the other Party for loss of use of any Works, loss of profit, loss of any contract or for any indirect or consequential loss or damage which may be suffered by the other Party in connection with the Contract, other than under:

(a) Sub-Clause 8.8 [Delay Damages];

(b) sub-paragraph (c) of Sub-Clause 13.3.1 [Variation by Instruction];

(c) Sub-Clause 15.7 [Payment after Termination for Employer’s

Convenience];

(d) Sub-Clause 16.4 [Payment after Termination by Contractor];

(e) Sub-Clause 17.3 [Intellectual and Industrial Property Rights];

(f) the first paragraph of Sub-Clause 17.4 [Indemnities by Contractor]

and

(g) Sub-Clause 17.5 [Indemnities by Employer].

The total liability of the Contractor to the Employer under or in

connection with the Contract, other than:

(i) under Sub-Clause 2.6 [Employer-Supplied Materials and Employer’s

Equipment];

(ii) under Sub-Clause 4.19 [Temporary Utilities];

(iii) under Sub-Clause 17.3 [Intellectual and Industrial Property Rights];

and

(iv) under the first paragraph of Sub-Clause 17.4 [Indemnities by

Contractor],

shall not exceed the sum stated in the Contract Data or (if a sum is not so

stated) the Accepted Contract Amount.

This Sub-Clause shall not limit liability in any case of fraud, gross negligence, deliberate default or reckless misconduct by the defaulting Party.

Conclusion

Limitation of liability clause is used to limit the financial losses of the contractor or consultant if they are held liable for any mistake or negligence. It’s a kind of risk mitigation measure for them. There are only few claims which can be recovered from the insurance. Therefore, it is always beneficial to limit the type of claims or cap the amount of claims using the limitation of liability clause.