Limitation of liability

Limitation of liability
Primary topic
Related topics
Methods and techniques

Limitation of liability is a statement that limits conditions of responsibility. Limitation of liability is a formal document that defines the conditions under which some individuals or companies can be held liable for losses or damages.

Limitation of liability can be also defined as clause in memorandum of association. In that case it states liability of shareholders for the company's debts. That liability is limited to the par value of fully paid shares.

Limitation of liability contracts reduce exposure of company to the risks. If the limitation of liability is not possible, the company can use insurance to transfer risks. That would work similar, however is can be more expensive.

It is important to check whether limitation of liability is enforceable. If it is not precise or not made according to law requirements, the business partner can easily challenge it.

Limitation of liability clause[edit]

This term is very commonly used and occurs in the contracts related to nearly all fields of contract law. Additionally is one of the most important parts which is very often negotiated and taken into careful consideration between the parties[1].The crucial elements related to the limitation of liability clause lies in the fact of the enforceable of this particular section, that is why during the process of creating this paragraph in the potential document such as official contract it is essential to look precisely into below-listed elements:

  • the contract must be written in a clear and unambiguous language which is easy to understand for both parties,
  • it is important to use appropriate formatting in terms of highlight the crucial information. This can be made by bold font, by underlining the significant part of the written text or by separating the particular clause form the other section of the contract,
  • in case when the limitation of liability clause is written by the one party, the other party, before signing the document shall point out, discuss and change the controvertible text due to meet the expectation of both parts of the contract. This part offers to require negations.

The historical background[edit]

The beginning of the term related to the limitation of liability has a long and uncertain origin. Some assume that this term may be even connected to the Roman law[2]. However, many discuss that it be official tracked back in 1733 in relation to the maritime claims. In that particular situation, the bone of contention was related to the cargo of bullion which was taken on the ship and then stolen from it. The case was raised by a shipowner who was held responsible for the loss, however, did not want to take the blame of the accident. Starting from that concept the shipowner could limit his liability to a particular entity which suffered damage or loss due to his negligent navigation of his own ship. As a result, this branch of industry separated form the other branches of commerce[3].

Limitation of Liability Act[edit]

According to the above-presented beginning of the term limitation of liability it is also significant to mention that in 1851 the Limitation of Liability Act went into effect according to the United States maritime law. This Act was first, provided as the state legislation which occurred in Massachusetts in 1819 and then in Maine in 1821, both of this document begin the need for a proper act related to the shipping industry[4].In the United Kingdom the act related to the limitation of liability in the shipping industry was firstly introduced by Parlament as Responsibility of Shipowners Act in 1733, then by the Merchant Shipping Act in 1854[5].Due to many controversial cases through the centuries, such as one related to the Titanic sinking claims and oil spill of Deepwater Horizon this act is widely used and commonly discuss. The Limitation of Liability Act is also the official document which protected many victims against major neglects[6].

References[edit]

Footnotes[edit]

  1. Sappington D.(1983).pp.3-4
  2. Lagoni N.I(2007).pp.260
  3. Thomas M.(1978-1979). pp.1205
  4. Chen X.(2001). pp.14-15
  5. Lagoni N.I(2007).pp.260
  6. Martinez Gutierrez N.A.(2010). pp.17.18

Author: Magdalena Czajka