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Limitation of Liability (Clause 8)

Warranty

The alternative wordings for clause 8.1 take very different approaches. In the first version of the clause there is a limited warranty against the infringement of third party rights. The second set of wording makes it clear that no warranty is given in this respect. This is something that the parties will have to negotiate. Even where a warranty is given, the warranty is qualified and appropriate searches should be made by the party wishing to exploit any patentable invention.

Members of the Consortium should consider the possible consequences if no due diligence is carried out and it later turns out that there is a patent that prevents the exploitation of the Results. Some funders may insist that warranties are given to the effect that the Results will not infringe third party Intellectual Property Rights.

The words in square brackets in clause 8.2 should be omitted of the second version of clause 8.1 is used.

Indemnity

The indemnity in clause 8.3 covers the beneficiaries of the indemnity against any claim that is brought against them as a result of the use of the Results or other materials provided by the indemnified party. The rationale for this is that the party undertaking the exploitation of the Results takes the commercial risks associated with its use of the IP.

The members of the Consortium should consider whether if a member of the Consortium knowingly infringes third party Intellectual Property, it should indemnify the other members against the consequences. If the members of the Consortium decide to adopt this suggestion the following should clause be added:

“Each party (“the Indemnifying Party”) will indemnify each of the other parties and keep them fully and effectively indemnified, against each and every claim made against them as a result of the Indemnifying Party’s knowing infringement of any third party’s Intellectual Property, provided that any party claiming the benefit of this indemnity must:

  • X.X.1 promptly notify the Indemnifying Party of details of the claim;
  • X.X.2 not make any admission in relation to the claim;
  • X.X.3 allow the Indemnifying Party to have the conduct of the defence or settlement of the claim; and
  • X.X.4 give the Indemnifying Party all reasonable assistance (at the Indemnifying Party’s expense) in dealing with the claim.”

And a reference to this new clause should be added to the opening words of clause 8.4.

The indemnity is conditional on the person claiming the benefit of the indemnity letting the person giving the indemnity know about the claim quickly, not making any admission, allowing that person to deal with the claim, and helping that person in dealing with it (at that person's expense). These conditions are imposed to make sure that the people taking the benefit of the indemnity do not make matters worse and potentially increase the amount of the claim.

The indemnity does not cover negligence or deliberate breach of the Agreement, or a breach of confidence.

The parties should consider whether the party giving the indemnity should be required to have insurance to back up the indemnity. Larger organisations may self-insure, but where a party has limited financial resources, the indemnity may be worthless unless the party giving the indemnity has appropriate insurance.

Exclusion of Liability for Indirect Loss

The object of clause 8.4 is to exclude liability for indirect loss, that is loss that the parties would not necessarily foresee as being the natural and direct result of a breach of contract or negligence; a loss that is suffered only because some special circumstance. Liability for loss of profits and revenue, and other some other types of loss (whether they are direct or indirect) is excluded altogether.

Cap on Liability for Direct Loss

Clause 8.5 gives suggestions for the sort of cap on liability that might be included in the Agreement and the parties should choose between:

  • the amount of the Financial Contribution made by the party that is liable;
  • the amount of the External Funding allocated to that party; and
  • inserting a specific amount.

In any case, before agreeing a limitation of liability clause, the parties should consider their insurance arrangements.

Some sorts of loss cannot be excluded by law, and the Agreements take the line that it would be unfair to cap or exclude liability for loss that has been caused deliberately or as a result of a breach of confidence. This principle overrides the limitations and exclusions in other clauses.

Clause 8.6.3 states that the parties' liability for breach of the Funding Conditions is not limited. This is because the consequences of a breach of those conditions will depend on the Funding Body and it is not something that the members of the Consortium can regulate among themselves.

Exclusion of Implied Terms and Conditions (clause 8.7)

The law, such as the Supply of Good and Services Act, and sometimes the course of dealing between the parties, can mean that terms are implied into an agreement, even though they are not actually set out in the agreement. This clause excludes that sort of term. A typical example of an implied term is that the supplier will use reasonable skill and care or that goods will be fit for purpose. Only the express terms of the Agreement apply to the Project.