Can liability be excluded in an exoneration clause?
Most general terms and conditions include an exoneration clause. In this clause the user of the terms and conditions limits his liability for loss due to possible failure in performance. The courts regularly have to deal with the issue how such a clause should be interpreted and whether it is in fact reasonable at all to apply this clause. Dutch contract lawyer Hidde Reitsma discusses a recent ruling on this issue.
Failure of dutch ICT company in software implementation
In this case the claimant (a transport company) claimed substantial damage compensation from an ICT company. The ICT company had seriously failed in complying with a major order for the implementation of software at the claimant’s company. In the main action the court had already issued a declaratory decision that the ICT company was liable for the loss from this noncompliance. The claimant had requested a referral to follow-up proceedings to determine the loss.
Follow-up proceedings to determine the loss
Follow-up proceedings to determine the loss if the exact loss is not yet known at the time of the main action can provide a solution. Sometimes it can be more convenient to have liability established first if a loss investigation is a costly process. In this case the claimant submitted three reports in the follow-up proceedings, in which experts gave their opinion about the loss. The loss amounted over € 1 million.
Exclusion of liability in exoneration clause
However, the ICT company invoked the exoneration clause in its general terms and conditions. In this clause, the company excluded its liability – except for gross negligence or intentional act – for the following:
• All indirect loss;
• For other (direct) loss, the liability was maximized to the total amount of the invoices, in this case €180,000.
Indirect loss excluded from damage compensation
There was also a stipulation that indirect loss included, among others, consequential loss, loss of profits, missed savings and trading loss. Finally, the extent of the ‘other loss’ was practically limited to reasonable costs that the client had to incur to determine the loss, limit the loss and collection costs.
Exoneration clause leads to unacceptable result
In the opinion of the claimant the exoneration clause should not be applied, because under the given circumstances the application of this clause would lead to an unacceptable result, according to standards of reasonableness and fairness. The court agreed to a certain extent as indeed the ICT company had excluded practically all liability if one were to compare the list in the clause to possible loss a client could suffer from noncompliance by the ICT company.
Dutch court: no longer an incentive for full compliance
The court considers, among others, that the exoneration clause is part of the general terms and conditions that were not negotiated between the parties. The court considers that the manner of exclusion of liability leaves insufficient incentive for the ICT company to properly comply with its obligations. The court finds this an unacceptable result.
The court rules stipulation on indirect loss is not applicable
However, the court finds that the limitation of the liability to the amount of the invoices can be upheld, seeing that the fee of the ICT company is not reasonably proportional to the extremely high liability risks that it has in case of error. If there was no maximization of the damage compensation, the ICT company could only be insured against very high premiums. This means that the court rules that the stipulation for indirect loss is not applicable, but the court only grants compensation for the loss proven to an amount of €180,000.