Tag: limitation of liability

SaaS Agreements – Terms and Conditions – Limitation of Liability

The terms of a SaaS agreement should always include a clause limiting the SaaS supplier’s liability to the customer. The specific details of the liability clause will depend upon the type of SaaS software being supplied, the value of the SaaS agreement and what is usual in the business sector in which the parties operate.

The following issues should be covered by the limitation of liability clause in most SaaS agreements.

Amount of Liability

If you do not cap the amount of your monetary liability to SaaS customers in your SaaS agreement you will be liable for an unlimited amount. You can specify whatever financial cap you choose for all liabilities or specific liabilities, provided that you do not place any cap on your financial liability for:

  • death or personal injury arising out of negligence; and
  • fraud or fraudulent misrepresentation;

Under English law you cannot limit your liability for these issues and any attempt to do so will be invalid and could make all of your limitation of liability clauses invalid.

Type of Damage Covered

In addition to limiting the amount of your liability you should also limit the types of damages and losses for which you will be liable. Generally in SaaS agreements, liability is excluded for indirect, consequential and economic losses. If there are any particular losses that you do not want to be liable for it is prudent to specifically state these in order to ensure that they are included in your restriction. For example, the non-functioning of the SaaS software due to the Internet being unavailable.

Liquidated Damages

In some circumstances you may want to specify a fixed amount that the parties agree in advance is a fair sum to be paid for particular breaches of the SaaS agreement. Usually liquidated damages (service credits) will be specified in your service level agreement (SLA) for availability problems. Remember that if you include liquidated damages in your SaaS agreement you should ensure that no other types of damages can be claimed in addition for the same breach.

Validity of the Limitation

In order for your limitation of liability clauses to be valid they must:

  • be reasonable;
  • be incorporated into the terms of the SaaS Agreement; and
  • be clearly worded.

There are different rules concerning the reasonableness of your limitation of liability depending upon whether you are operating business to business (BTB) or business to customer (BTC).

Any limitation clause should be included in your standard terms and conditions and the wording should be clear. Remember that any uncertainty or contradiction in the wording will be construed in favour of your SaaS customer. For example, specifically state that indemnities are included in the financial cap on liability.

Foreign Laws

If you supply SaaS services outside of the UK SaaS customers often request that you change the law that applies to the SaaS agreement to their local law. Be careful when agreeing to this, as your limitation of liability clauses could be invalid under the SaaS customer’s local law and you will then have unlimited liability for all claims.

Alternatively, if your SaaS agreement is currently subject to a law other than English law and you wish to change the applicable law to English, you should have the agreement checked by an English lawyer, as you will probably be able to restrict your potential liabilities to a greater extent under English law.

General

In view of the above it may be worth reviewing your SaaS agreement to ensure that it covers the above issues in order to limit your liability for potential claims.

Help

Irene Bodle is an IT lawyer specialising in SaaS agreements with over 10 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:

irene.bodle@bodlelaw.com
www.bodlelaw.com

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SaaS Agreements – The Advantages of using English Law

If you are a SaaS supplier who often deals with customers located outside of the UK, you will have experienced customers insisting on their local law applying to your SaaS agreement. Many SaaS suppliers agree to this by simply removing “English law” from the SaaS agreement and replacing it with, for example, “German law” unaware of the consequences this will have upon their SaaS terms and conditions.

Law and Jurisdiction

There is an important difference between applicable law and applicable jurisdiction. Applicable law specifies the country’s laws that will apply to your SaaS agreement, if there is a dispute. Jurisdiction specifies which courts will have authority to deal with a dispute. Usually your SaaS agreement will specify England and Wales as the applicable law and the courts of England as the jurisdiction.

Therefore, if you change the applicable law in your SaaS agreement you may also want to consider changing the country in which the courts are located that will deal with any disputes.

Language

Do not forget to specify in the SaaS agreement in which language disputes should be dealt with. If you do not speak or understand the local language of your customer, you should state that all disputes must be dealt with in English, particularly if you have agreed to your SaaS agreement being translated into your customer’s local language. You should also state that the English version of the SaaS agreement will prevail if there is a discrepancy between the two versions.

Limitation of Liability

By agreeing to a change of the law applicable to your SaaS agreement you could automatically be invalidating many of the limitations on liability contained in your SaaS agreement. For example, in France and Germany you cannot limit your liability for gross negligence, wilful misconduct, breach of material obligations or some types of force majeure.

Damages Available

By agreeing to a change of the law applicable to your SaaS agreement you may also become liable for types of damages that you claim to exclude in your SaaS agreement, i.e. direct damages, indirect damages, typically foreseeable damages, punitive damages, as in some countries liability cannot be limited for these types of damages or the local understanding of what types of losses fall within these areas may differ from English law.

Consumer or Business

By agreeing to a change of the law applicable to your SaaS agreement you could become liable to local laws that apply to consumer contracts, even though you are contracting with a business. For example, in France if you enter into a SaaS agreement with a business which does not operate in your business sector – the customer will be considered to be a consumer and will be protected by local consumer protection laws.

Extra Rights

By agreeing to a change of the law applicable to your SaaS agreement you may grant customers new rights that do not exist under English law. For example, in Germany under mandatory German law a customer can lower the price it pays for the SaaS services if the service is defective.

General

For the above reasons English law is often the law of choice used in international SaaS agreements. Suppliers can more easily avoid “hidden” mandatory laws which can invalidate your carefully drafted supplier terms and conditions and English law allows you more freedom to draft terms free from mandatory legal restrictions.

Help

Irene Bodle is an IT lawyer specialising in SaaS agreements with over 10 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:

irene.bodle@bodlelaw.com
www.bodlelaw.com

To register for my newsletter click here

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SaaS Agreement – Terms and Conditions – Limitation of Liability Invalid

Do you always ensure that your SaaS terms apply to contracts with customers. If not, the High Court has decided in Ghsp Inc v Ab Electronic Ltd that where two companies fail to agree on whose terms and conditions shall apply to an agreement, neither company’s terms can be enforced. This resulted in the supplier having unlimited liability to the customer for defective parts it had supplied.

Failure to Agree Terms

During the course of negotiating a sales agreement the supplier and customer failed to agree on whose terms would apply to the sale. They both rejected each other’s terms on a number of occasions and started to deliver and use products, without agreeing on the issue of liability, although both acknowledged that the issue needed to be resolved at some future date.

Later when some defects in the products arose the customer claimed that liability was unlimited, as its terms applied. The supplier argued that the limited liability clauses of its terms applied to the agreement.

Battle of the Forms

Each company stuck to its own terms and conditions in the hope that they would be seen as being accepted by the other. However the court looked at the negotiations and actions of the parties and concluded that:

  • there was no express acceptance by either party of the other’s terms;
  • there was no offer containing either party’s terms; and
  • there was no conduct by either party which amounted to acceptance of the other’s terms.

The Court stated that neither company’s terms could be said to have been accepted by the other. Instead the dispute would be governed by general commercial law and the Sale of Goods Act 1979. Under the Sale of Goods Act – goods must be of satisfactory quality. The supplier was therefore fully liable for all of the customer’s losses (both direct and indirect) as no exclusion clause limiting its liability was incorporated into the agreement between the parties.

Your Terms must be Incorporated into the Agreement

In order to avoid this situation from arising you must ensure that your terms and conditions are incorporated into the sales agreement by:

  • expressly stating in the agreement that the other’s terms and conditions are excluded;
  • expressly stating in the agreement and/or order form that only your terms and conditions will apply.

Help

IIrene Bodle is an IT lawyer specialising in SaaS agreements, GDPR and cloud computing with over 15 years experience in the IT sector. If you require assistance with any SaaS or cloud computing contracts, GDPR or any other IT legal issues please contact me:

irene.bodle@bodlelaw.com
www.bodlelaw.com

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SaaS Agreements – Freedom of Information Act – Disclosure

Were you aware that if you supply SaaS software to public authorities they can be legally obliged to release details of your SaaS agreement to competitors?

Public Tendering and Disclosure

Atos won a major tender to supply an IT system to a Government department to handle information requests and transactions between Government departments and the public. Atos was the only bidder for the tender.

In 2007 an individual made a request under the Freedom of Information Act (FOI) for disclosure of particular details of the IT agreement. The details requested included information on the liability of Atos, benchmarking and prices. The Data Commissioner ordered the Government department to disclose the details requested.

Right to Refuse Disclose of Confidential Information

The Government department refused to disclose the information pursuant to its rights under section 43 of the FOI, namely that the information requested was a trade secret and that disclosure would damage the commercial interests of the parties. An appeal was made to the Information Tribunal, and last week the Tribunal agreed with the Data Commissioner’s office and ordered that disclosure of some of the details requested was in the public interest.

Are Prices Trade Secrets?

What may be reassuring to SaaS suppliers is that not all of the information requested had to be disclosed on appeal. The Tribunal agreed with Atos that its pricing model was a trade secret and disclosure of this “could undermine the owner’s business and give competitors a commercial advantage”.  The Tribunal also agreed that the exact location of the Atos data centre must not be disclosed, for security reasons, but that the country of its location should be disclosed to show that there was compliance with the Data Protection Act.

Protecting Confidential Information

The above illustrates the real dangers of confidential information being disclosed by a customer, by law. In order to limit and control the information which can be requested and disclosed under a FOI request ,it is essential that adequate clauses are included, not just in any NDA which is signed during the tendering process, but also  in the confidentiality sections of the final SaaS agreement.

Help

Irene Bodle is an IT lawyer specialising in SaaS agreements with over 10 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:

irene.bodle@bodlelaw.com
www.bodlelaw.com

To register for my newsletter click here

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