Limitation of liability in commercial agreements

Case law concerning acceptance shows that when a limitation of liability is particularly burdensome, stricter requirements are imposed regarding how the limitation is referenced in the parties' agreement and correspondence. On the other hand, case law also indicates that more lenient requirements apply to the acceptance of a limitation of liability derived from an Agreed Document. 

In an older ruling by the Supreme Court (U.1995.856/2H), the court held that a limitation of liability in the General Conditions of the Nordic Association of Freight Forwarders (NSAB), a so-called "Agreed Document," was validly agreed upon between the parties. The court, in its reasoning, found no grounds to criticize the fact that there had been no direct reference in the order letters to the limitation of liability provisions set forth in §§ 23 and 26 of the NSAB. Instead, the order letters simply referred to the NSAB as a whole. Nevertheless, the court found that the limitation of liability applied between the parties. It should be noted that these "Agreed Documents" are pre-negotiated and widely accepted, providing consistency and reducing the need for extensive individual contract drafting.

In a later decision by the Supreme Court (U.2009.1857H), the court had to determine whether a notice of breach in relation to a purchase of a seemingly defect truck was made within the stipulated time frame (within 8 days) under a limitation of liability printed on the back of a sales receipt. In its reasoning, the Supreme Court emphasized that the limitation of liability was significantly more burdensome for the buyer than the rules of the Danish Sale of Goods Act. Additionally, the court noted that the limitation of liability 1) had not been discussed during the negotiations, 2) were not particularly highlighted by a reference on the front of the contract, and 3) were not prominently featured on the back of the contract. The Supreme Court thus held that the limitation of liability had not been accepted between the parties.

In another and more recent decision by the Western High Court (U.2017.2272V), the court was asked to rule on a limitation of liability in an agreement between a supplier of gears for Danish ships and a ship repairer. In its assessment of the limitation clause, the High Court, inter alia, emphasized 1) that it was an extensive exclusion of liability, 2) that the exclusion had not been discussed between the parties, 3) that the exclusion had not been highlighted to the buyer, and 4) that the seller had merely made a reference to the delivery terms, which had not been provided to the buyer and were not available in a Danish translation. The High Court thus held that the liability limitation could not be considered accepted between the parties.

The interpretation of limitations of liability in commercial contracts is often restrictive, especially when the terms are generally worded. This, firstly, stems from the contra proferentem rule, where the risk of unclear terms is placed on the drafter, who had the opportunity to clarify the content. Secondly, the minimum rule plays a role, as the limitation of liability is interpreted in the way that is least burdensome for the obligated party. This reflects a general concern for maintaining balance and fairness in contract law.

The restrictive interpretation is evident in an older Supreme Court ruling (U.1929.707H), where the court had to assess a limitation of liability, stating that compensation for a single piece of moving goods could not exceed a certain amount. The Supreme Court held that the limitation should be understood as only limiting liability for accidental damage. Consequently, the movers, who were found to have damaged a marble bust through negligence, were required to pay full compensation for its value.

In a later ruling by the Western High Court (FED.2002.297), the court, in a case concerning lost luggage during a bus trip, had to assess the following limitation of liability: 

"It is the passenger’s own responsibility to make sure that the luggage gets on and off the coach and the passenger should check up on this. There will not be compensated for any damaged or lost luggage.”

During the case, it was ascertained that the luggage had been lost during the trip after a stop along the way. The High Court emphasized, inter alia, in its reasoning that the limitation was formulated in a general and brief manner. It could therefore not be assumed that the limitation also covered luggage in the custody of the bus company. Consequently, as the bus company had drafted the standard term, the court found that the company had not limited its liability for lost luggage due to the company's error or lack of oversight.

Disregarding limitations of liability in commercial contracts is the exception, and it generally requires significant grounds for such clauses to be declared invalid.

In an older Supreme Court ruling (U.1965.565H), the court had to address a limitation of liability following a crane's collision with goods unloaded on a quay. The Supreme Court held that in the specific case, where significant negligence had been displayed, the liability limitation could not be invoked.

In a later case before the Supreme Court (U.1993.851H), the court had to assess a limitation of liability in connection with a company which had handed over a large batch of fax machines to an individual who falsely claimed to be a haulier picking up the fax machines. In its reasoning, the Supreme Court held that the company's own well-founded practice had been deviated from in such an irresponsible manner that the company was precluded from invoking the limitation clause.

In a subsequent Supreme Court ruling (U.2010.3113H), the court held that when a security company was given an incorrect – though similar – code and subsequently disabled an alarm, it could not rely on a limitation of liability agreed between the parties, as the security company had breached a "central contractual obligation."

Finally, reference can be made to a case before the Supreme Court (U.2005.2438H), concerning whether a limitation of liability in an Agreed Document could be disregarded. In its ruling, The Supreme Court merely referenced the wording in the limitation clause and stated that gross negligence was covered by the limitation clause. The Supreme Court thus did not find grounds for disregarding the limitation clause.

The aforementioned case law illustrates that, as a general rule, significant grounds are required before a limitation of liability can be disregarded. There must, therefore, be evidence of gross or substantial negligence. At the same time, case law shows that a limitation of liability derived from an Agreed Document carries substantial weight in the court’s assessment of whether the limitation can be disregarded.

As it follows, limitations of liability play a crucial role in commercial contracts and are important tools for managing risk between the parties. However, it is essential that these limitations are clearly formulated and firmly embedded in the contract to avoid disputes about their acceptance or interpretation. While limitations of liability are generally upheld, case law shows that they may be disregarded in cases of gross negligence or other serious breaches of the agreement. 

At Schjødt, we have extensive experience advising on this specific area. Should you have any questions regarding limitation of liability in commercial contracts, please do not hesitate to contact us.