Damages and liability limitation clause review

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Damages clauses are often read only for the general promise to compensate loss, when the questions that actually matter are which losses, up to what amount, and under what exceptions. Article 415 of the Civil Code governs damages for non-performance, but contracts typically layer specific limits, exclusions and carve-outs on top of that general rule, and those specifics are what decide how the risk is actually shared.

Sizing the cap to the deal

Common caps include the contract price, a set number of months' fees, annual fees, or a fixed amount, and providers generally prefer a predictable ceiling while the counterparty checks whether that ceiling is realistic against the harm a failure could actually cause. Whether the cap applies per individual order or across a year matters considerably once multiple orders run in parallel, and it is worth checking the cap against the company's insurance coverage.

Indirect damages, lost profits and special damages

Exclusions for indirect damages, lost profits and special damages are common but often left undefined in practice. Rather than treating an exclusion as automatically safe or automatically dangerous, review should work out concretely what loss a real failure would actually generate (a system outage stopping the customer's operations, a defective part halting a production line) and check whether that loss remains recoverable.

Designing exceptions to the cap

Carve-outs for intent or gross negligence, breach of confidentiality, personal data leaks, IP infringement, anti-social-forces violations or non-payment are typical, but too many carve-outs erodes the point of having a cap at all, while too few leaves the most serious risks trapped inside it. The right balance depends on the likelihood and scale of harm and on available insurance.

Reading damages against scope of work

A cap that looks reasonable in isolation may not be, once weighed against heavy performance guarantees written into an SOW; conversely, a well-defined scope, SLA and set of exclusions makes negotiating the cap itself considerably easier. Damages clauses should therefore be read together with scope, deliverables, acceptance, warranty, confidentiality and subcontracting, not cut out and evaluated on their own.

Notice procedures matter as much as the number

Beyond the cap and its exceptions, review should check the notice deadline after a loss occurs, what supporting documentation is required, and whether there is a duty to notify the other party of a third-party claim. A slow initial response tends to be what actually enlarges the damage in personal-data and IP disputes.