UK Law and Practice Contributed by: Richard Brown, Louisa Chambers, Adam Wyman and Michael Ross, Travers Smith LLP
Under common law, parties cannot include clauses attempting to exclude liability for fraudulent misrepre - sentation or dishonesty. Any such clause will be found to be unreasonable and have no effect. Consequently, the only categories of loss not typically subject to any limitation or exclusion of liability are death or personal injury due to negligence and fraud/dishonesty. Leaving aside the above-mentioned legal restrictions on excluding or limiting liability (but subject to them), contracting parties will typically seek to agree specific financial limitations on their liability. This can take a number of different forms – for example, a liability cap may apply on a per claims basis or in respect of all claims arising in a specified period or in aggregate for the entire duration of the contract. The parties will often agree to carve out certain types of loss from the liability caps where appropriate to do so, such that any liability for those losses will be unlimited. In the UK, this would most often be the case in respect of liability for third-party IP infringement claims, breach of confidentiality and breach of anti-bribery and cor - ruption obligations. It is also common for parties to agree to specific liability caps for specific types of loss, sometimes referred to as “super caps”. However, with regard to liability caps generally (in terms of their structure, scope and quantum), much will depend on the nature of the arrangement and the relative bargain - ing power of the parties. 4.4 Implied Terms Under English law, a contract (including any outsourc - ing contract) will consist of the express terms agreed between the parties, together with any terms that are deemed to be implied by either usage or custom, the parties’ previous course of dealings, common law, or statute. The most relevant statutory implied terms in relation to outsourcing contracts are those set out in the Supply of Goods and Services Act 1982. These include: • an implied obligation on a supplier of services to carry out such services with reasonable care and skill; • an implied term that the supplier will carry out the service within a reasonable time; and
• an implied term that the party contracting with the supplier will pay a reasonable charge (where the contract is silent on such matters or timing/charges are left to be determined by the parties). However, the outsourcing contract often specifically excludes these terms and replaces them with specific provisions, with the intention that all relevant obliga - tions are set out expressly in the written contract. Where assets are being transferred, a term will be implied by statute that the party transferring the asset has title to it and is able to transfer it. Where the out - sourcing involves supply of goods (eg, an IT outsourc - ing that includes the supply of hardware to the cus - tomer), then terms will be implied that the goods are of satisfactory quality and fit for their purpose. Implied terms as to title to assets cannot be excluded or restricted. Those relating to satisfactory quality, fit - ness for purpose and certain other matters can only be restricted where this meets the reasonableness requirement set out in the Unfair Contract Terms Act 1977. Typically, however, most suppliers will seek to exclude these terms and substitute their own alterna - tive warranties. Beyond these statutory terms, it is comparatively rare for terms to be implied into outsourcing contracts. This is because they are generally documented in a reasonable level of detail and the English courts will therefore have regard primarily to the express terms of the contract. However, there are circumstances in which additional terms could still be implied. The most common of these is where the parties have failed to address certain issues in their written contract; a term may be implied where it is necessary to give the con - tract “business efficacy”. Such interventions tend to be used sparingly by the English courts, which are generally reluctant to be drawn into “writing the par - ties’ contract for them”. That said, where a contract provides for an exercise of discretion – for example, where a party’s consent is required for a particular change – the courts will typi - cally imply terms requiring that discretion to be exer - cised rationally, in good faith and consistently with its contractual purpose. In addition, because many
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