Limitation of Liability – is it really limitation?

1. Limitation of Liability (“LOL”) clauses are essential to any carriage / service contracts so as to cap the exposure to breaches of the service provider. In the case of Bills of Lading contracts, invariably the Hague or Hague Visby Rules are incorporated on the basis of law or contract such that the Carrier, in addition to the exclusions provided in Art IV Rule 2 (a to q), is entitled to limit liability as provided in Art IV Rule 5 to either Pound 100 per package (for the Hague Rules) or SDR 666.67 per package or 2 SDR per kg (for the Hague Visby Rules). This article focusses on LOL given that it not only acts as a sound risk management method to deal with exposures but that it may also be required as a requirement to seek insurance cover for a service provider’s liabilities. Recently, TT Club published an article on “Ports and Terminals – standard trading conditions?” which is sound risk management policy not only for ports and terminals but also for all transport operators. We had also written earlier on a similar topic, Standard Trading Conditions – Time Bar & Limitation of Liability Clauses, and therefore will not repeat the ground earlier covered.
2. As mentioned above, essentially, contracts would try to exclude and limit liability. Common law courts would generally interpret an exclusion clause strictly such that if there is any ambiguity, it would be against the party seeking to rely on the clauseⁱ. In the case of LOL clauses, while the Courts would certainly review the wordings used to ascertain the breadth of the LOL, we submit that they (Courts) would generally give effect given that this is effectively an allocation of risk i.e. any liability above the LOL should be borne by the party who has suffered the loss and for which they could have taken active risk management measures such as insurance.
3. Recently, we came across a LOL clause in the wordings of a contract of a Service Provider providing Depot Services. This clause provided for a very low limit of liability (S$ 100 – approx. USD 75 per incident or series of related incidents… ). Given that the LOL provides for a derisory amount, the issue would be whether the LOL is acting as an exclusion clause instead of a LOL? While Courts would generally not interfere when a contract has been willingly made between two parties, particularly when parties are of equal bargaining power, this is not the case when parties have no option but to engage on terms which they are unable to negotiate with. This being the case, the weaker party could seek to deny the application of the LOL on the basis that it acts as an exclusion clause and therefore it should be read restrictively, and/or struck down based on the provisions of Unfair Contract Terms Act 1977ⁱⁱ .
4. It is certainly not our aim to find new ways to deny the application of the terms of a contract. Instead, we would prefer if the contractual terms were “fairer” such that they stand the scrutiny of the courts. This being the case, if the LOL clause of the SP was for a more reasonable amount (say on the basis of either the Standard Trading Conditions of the  Singapore Transporters Association/Singapore Logistics Associationⁱⁱⁱ or on the basis of the Hague or the Hague Visby Rules^iv, we submit that they would be held as valid.
5. It is always preferrable to resolve issues amicably so as to avoid unnecessary cost spends. In this regard, we recently came upon the LinkedIn post^v of Khelvin Xu and which does detail that pursuit in the courts does require a party to spend time, energy and costs and which will not be recoverable even if a party is ultimately successful. However, dominant parties should consider the potential publicity on the use of restrictive terms to consider more reasonable LOL.
6. In conclusion,
   1. Both Exclusion and LOL are effective risk management measures to cap one’s exposure.
   2. Having a very low LOL may result in the clause being held invalid resulting in a higher liability and which in turn may result in additional spends.

^i. The Contra Proferentum Rule – see Contra Proferentem | Practical Law (thomsonreuters.com). See also Ashurst Quickguides on “Limitation and Exclusion of Liability”.
^ii. See article of Sharpe & Jagger LLC on “Limitation of Liability Clauses – Are such clauses effective in limiting liability?”.
^iii. Both the STA and SLA have similar provisions in their STC’s and which provide for a lol of SGD 5 per kg and upto a maximum of SGD 100,000 in any one claim.  
^{iv. The equipment would be used in International Carriage and participants would be aware of the limitation provisions and expected to take active risk management measures to deal with the balance, say by taking an equipment cover.
v.} On wedding woes, heartbreak hotel, and contractual compensation.