Enforceability of liability limitations

Benkert v Paint Dispensing (Court of Sessions Scotland – Inner House) [2022]

Clauses limiting liability to specified sums are of great practical importance, particularly where the cap is comparatively small in relation to a much more significant loss. This is one area where the law does exercise a degree of oversight and so decisions, particularly from an appeal court, on when a limitation is likely to be upheld are of great importance .


The facts are as reported in our report http://www.trglaw.com/news343.html The key legal issue was the enforceability of the limitation clause in the contract governing the provision of maintenance services between the parties. This limited liability to the annual value of the maintenance contract, namely £3,225. The claimant had sought damages exceeding £29million as the result of a fire . The service provider had relevant insurance of £5million. The original judge in the Scottish Outer House had upheld the limitation clause as being reasonable and therefore enforceable.


The Inner House firstly considered the nature of its role in an appeal relating to the reasonableness of a limitation of liability clause. It said a relatively high degree of deference will be afforded to the balancing exercise carried out at first-instance and the upper court will not interfere unless it is satisfied that the lower court proceeded upon an erroneous principle or was plainly or obviously wrong (a bit like the way VAR is supposed to operate in football by overturning ‘clear and obvious’ errors!).

The court went on to say that in assessing the reasonableness of an exclusion or limitation clause, it would be unrealistic for the court to ignore the size, scale and resources of the respective contracting parties; these factors are likely to have a bearing on their bargaining power relative to one another. It also said that commercial parties are generally the best judges of what is fair and reasonable for them.

The liability limitation clause was the only clause which was prefaced by the following statement in capitals and underlined. “THE CUSTOMER'S ATTENTION IS SPECIFICALLY DRAWN TO THE PROVISIONS SET OUT BELOW”. It was, said the court, designed to catch the eye of anybody flicking through the contract.

The contract was for a small annual fee. To expect the service provider to obtain insurance sufficient to cover very substantial losses sustained by each of their customers, the nature and extent of which they were in no position to estimate, would be entirely unrealistic. The fact that the service provider held public liability insurance and disclosed this fact to their customer when asked was irrelevant in the context of considering whether the contractual limitation clause was fair and reasonable. The availability and disclosure of such cover cannot be taken as somehow derogating from the plain terms of the limitation agreed between the parties, particularly in view of the fact that the service provider had unlimited liability for death and personal injury caused by their negligence. It is also irrelevant that the service provider did not offer to contract with the customer on different terms; there was no obligation on them to do so, whether under UCTA or otherwise. The customer had taken out insurance to cover the type of losses which they sustained as a result of the fire. The present action was one pursued in their name by their insurers in exercise of their subrogation rights.

On insurance, the court commented that it was not solely concerned with whether insurance was available [to the service provider] but a broader question that takes into account the commercial realities associated with obtaining insurance, including the cost, and whether it was genuinely ‘open’ to the party to insure against the risk. The court acknowledged that “in certain circumstances, it may be more economical for the customer to insure separately against a risk which may or may not materialise”.

All these factors pointed strongly towards the conclusion that the limitation clause was fair and reasonable. The court was satisfied that in assessing the reasonableness of the limitation clause, the original judge did not proceed on the basis of an erroneous principle or reach a decision which was plainly wrong.

Points to Note:

back to archive