If you’re running a business that sells goods or provides services, you’re probably aware that the law implies certain terms into your contracts – even if they aren’t in writing. These terms can affect your obligations and, more importantly, your liability exposure.
But what if you want to limit that exposure? Can you exclude these implied terms? Can you cap your liability if something goes wrong?
This article sets out to improve your understanding limitation of liability and implied terms under English law when dealing with business customers. It also touches briefly on how this is different if your customer is a consumer.
What are implied terms?
Implied terms are provisions the law inserts into your contract, even if you don’t specifically agree them.
For example:
- if you sell goods, they must be of satisfactory quality and fit for purpose (under the Sale of Goods Act 1979 or the Sale of Goods Act 1982 for services).
- if you provide a service, it must be carried out with reasonable care and skill (under the Supply of Goods and Services Act 1982).
These terms protect customers from poor quality goods or services, especially where there is no written contract or where the contract is silent on key issues.
Can you exclude these terms when dealing with another business?
Under English law, businesses can exclude or restrict implied terms in B2B (business-to-business) contracts, but only if the exclusion is reasonable. This is where the Unfair Contract Terms Act 1977 (UCTA) comes in.
The role of the Unfair Contract Terms Act 1977
UCTA applies to business-to-business contracts and limits your ability to exclude or restrict certain terms or liability.
Here’s a quick overview:
| Type of liability/term | Can it be excluded in B2B? |
|---|---|
| Liability for death or personal injury due to negligence | No – cannot be excluded in any circumstances |
| Liability for other loss caused by negligence | Yes – but only if the exclusion is reasonable |
| Implied terms as to quality or fitness (SOGA 1979, SGSA 1982) | Yes – but only if the exclusion is reasonable |
| Misrepresentation | Yes – but subject to a reasonableness test |
So, in short: yes, you can exclude implied terms and limit your liability – but it must pass the reasonableness test.
What Does “Reasonable” Mean?
Reasonableness under UCTA is judged at the time the contract is made – not after something has gone wrong.
Key factors include:
- bargaining power of each party
- whether the customer knew or ought to have known about the term
- whether the term is common in the relevant trade or industry
- whether it would have been practical to obtain insurance
- whether the customer was given an opportunity to negotiate the term
business examples:
Example 1: IT consultancy
Imagine a small IT consultancy provides support services to a larger financial services firm. The consultancy’s standard terms include a clause that excludes all liability for data loss.
If something goes wrong and the customer loses critical data, the consultancy tries to rely on the exclusion clause. But the court may find the clause unreasonable under UCTA – particularly if:
- the customer had no real opportunity to negotiate terms
- the consultancy had specialist knowledge
- the exclusion leaves the customer without any remedy
Example 2: manufacturer-supplier relationship
A component manufacturer supplies parts to a car company. Their contract excludes implied terms about fitness for purpose but caps liability at £50,000.
If a faulty batch causes £150,000 of damage to production, the cap may be upheld – if:
- both parties had legal teams review the contract
- the cap is proportionate to the contract value
- the manufacturer can show it’s a standard term across the sector
Limiting liability in practice
If you want to limit your liability effectively, here are some practical steps:
- Use clear precise language: Vague exclusions are more likely to be struck out. State exactly what is excluded or limited. For example:
| specific | vague |
|---|---|
| “Subject to clause X, the supplier’s liability in contract, tort or otherwise is limited to £100,000.” | “The supplier accepts no liability whatsoever.” |
- Be transparent: If you’re relying on standard terms, make sure they are brought to the customer’s attention before the contract is signed. Just having them on your website may not be enough.
- Consider tiered liability caps
You might limit different types of liability differently.
For example: - £500,000 for data breaches
- £50,000 for service delays
- unlimited liability for personal injury
This approach can help show that your terms are balanced and reasonable.
- Consider tiered liability caps
- Think about insurance: If you’re limiting your liability, consider what cover you actually have.
- If your cap is below the cost of potential claims, the customer may see it as a red flag.
- Equally, if you have £1m cover, offering a £10k cap may appear unreasonable.
Using an entire agreement clause
An entire agreement clause can help exclude implied terms not written in the contract.
Example: “This agreement constitutes the entire agreement between the parties and supersedes all previous discussions, representations and agreements…”
But remember – these clauses do not automatically exclude implied terms under statute. You’ll still need a separate clause addressing implied terms specifically.
What if your customer is a consumer?
Everything changes when you’re dealing with a consumer. Consumers are protected by the Consumer Rights Act 2015 (CRA), which gives them stronger rights than businesses. Here are some key differences:
| issue | B2B (UCTA) | B2C (CRA) |
|---|---|---|
| can you exclude implied terms? | yes, if reasonable | no, must not be excluded |
| can you limit your liability for negligence? | yes, if reasonable | not for death or personal injury |
| test applied | reasonableness | fairness – higher threshold |
| standard terms need to be fair? | no legal duty (but advisable) | yes, must be transparent and fair |
Business example
Example 3: cleaning services A domestic cleaning company offers contracts to both homeowners (consumers) and property developers (business customers).
- for the property developer, it can cap its liability to, say, £10,000 – subject to reasonableness.
- for the homeowner, it cannot exclude the implied term that the service will be carried out with reasonable care and skill – and any limitation must be fair and transparent.
Key takeaways for business owners
- Yes, you can limit liability and exclude implied terms in B2B contracts – but only if the clause is reasonable.
- Use clear, specific wording – avoid legalese or sweeping statements.
- Tailor your terms to the situation – sector, size of customer, risk level.
- Don’t just rely on “standard terms” – make sure they’re actually seen and agreed by the other side.
- If dealing with consumers, be extra cautious – consumer protection law is stricter and exclusion clauses are often unenforceable.
Final thoughts
Limiting liability and excluding implied terms can be crucial in managing legal risk – but it must be done carefully. Under English law, the balance lies in fairness and transparency. Getting your contract terms right can help protect your business without overreaching – and without creating a clause the courts will later strike down. If you’re unsure whether your current terms meet the legal standard, it’s worth reviewing them – or better still, using a well-drafted legal template created by English law specialists.
Need help drafting professional standard terms?
At PaperRock Documents, we offer expert-drafted legal templates you can trust – including terms and conditions, service agreements, and standard B2B contracts – all written by experienced English solicitors.
Each template includes practical guidance so you can customise it with confidence.
