Last time we discussed limitation of liability provisions and how they can be used by you or your vendors, suppliers and other independent contractors to limit, reduce or otherwise control liability under a contract.
Another way contracting parties can limit liability is by including a Waiver Of Consequential Damages provision. While this provision can be part of an overall limitation of liability provision, it is often set apart as its own provision.
Without getting into a detailed discussion on what types of damages constitute consequential damages (this is an entirely separate blog discussion that will come later), we can use the most classic example of consequential damages: lost profits as the focus of our discussion.
When you are providing goods or services to a client, you may want to consider including a waiver of consequential damages provision in order to better protect yourself in the event your client later claims that you breached the contract (or a warranty) and that caused them to lose profits or incur other consequential damages.
Conversely, if you are buying goods or services, you will want to look very closely at any waiver language to see if your suppliers, vendors or independent contractors are attempting to waive responsibility for any consequential damages, including lost profits, that you may suffer as a result of their breach.
Depending on the distribution of bargaining power between you and the other contracting party, you may not be able to negotiate this issue, but here are 2 things to consider about waivers of consequential damages:
(1) If you are faced with a supplier, vendor or independent contractor who wants you to agree to a waiver of consequential damages, you will at least want to try to make sure the waiver is MUTUAL (i.e. applies equally to both parties).
(2) Although we will have to discuss the scope of consequential and other damages at a later date, it is important for you to understand your level of exposure to damages in general, including consequential damages like lost profits, should your suppliers, vendors or independent contractors breach. It could be that whatever you’re buying from them wouldn’t really impact your business in a way that concerns you enough to put up a big fight about including this waiver language. So, know and understand the types of damages you may suffer from a supplier’s breach.
(e.g. There is a huge difference between suffering from some losses resulting from additional rental fees should your supplier be late in a delivery of purchased goods vs. losses resulting from a complete shutdown of operations).
Please contact an attorney if you’re ever faced with the decision of whether and how to waive or limit consequential damages in your contracts–there are many more considerations and this discussion only skims the surface!
