SaaS suppliers should always include limitation clauses in their the SaaS terms and conditions to attempt to limit or exclude liability for certain types of losses and to cap their financial liability for breaches of contract. However, in order for limitation clauses to be valid, SaaS suppliers must ensure that the wording of the limitation clause is clear and unambiguous, otherwise the whole clause could be ruled void by a court and the SaaS supplier’s liability will then be unlimited.
Dundee City Council v Geddes
In Geddes, a Scottish case, a construction contract contained a limitation clause which attempted to limit the contractor’s liability to a local council for a failure to supply goods of satisfactory quality or reasonably fit for their purpose. The clause stated that a claim for breach must be made in writing within 24 hours of delivery unless there were “special circumstances” to justify delay.
Interpretation by the Court
The court decided that it could be argued in virtually every case that “special circumstances” would apply so the scope of the limitation was uncertain. Accordingly, the court held that the entire clause was invalid for uncertainty. This resulted in the contractor being liable to the council for its failure to supply goods of satisfactory quality or reasonably fit for the purpose.
SaaS suppliers should be aware that if a limitation clause in their SaaS terms and conditions is disputed, in assessing the validity of a limitation clause a court may:
- simply delete the part of the clause excluding liability and leave the remainder standing;
- declare the whole clause invalid; or
- insert wording to amend the clause.
As a court can take any of these options, limitation clauses should be drafted to try to reduce the risk that none of the intended exclusions or restrictions will be valid in the event of a dispute.
SaaS suppliers should ensure that the language they use in limitation clauses:
- is not ambiguous;
- does not contain different types of exclusions in one single clause i.e. financial caps and restrictions on the types of losses that can be claimed should be separated.
Irene Bodle is an IT lawyer specialising in SaaS agreements with over 15 years experience in the IT sector. If you require assistance with any SaaS, ASP, software on demand contracts or any other IT legal issues contact me:
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