Consequential Damages Waiver Clause

A "consequential damages waiver clause" in a contract limits liability by excluding recovery for indirect or consequential damages resulting from a breach, protecting parties from extensive financial consequences beyond the immediate losses.

Key elements of a consequential damages waiver clause in a commercial contract include:

  • Explicit Exclusion: This clause clearly states that consequential damages are excluded from recoverable losses, limiting the scope of potential liability.
  • Definition of Consequential Damages: It precisely defines what constitutes consequential damages to avoid ambiguity or disputes over the scope of excluded losses.
  • Exceptions: This clause may include exceptions, specifying situations where consequential damages are recoverable despite the general exclusion.
  • Mutual Agreement: It represents a mutual agreement between parties, establishing a shared understanding of the limitations on liability for consequential damages.

Examples of consequential damages waiver clauses in a commercial contract include:

  • In a software license, a consequential damages waiver clause might protect the licensor from liability for business interruption or lost profits due to software malfunction.
  • A construction contract may include a consequential damages waiver to limit the contractor's liability for delays or disruptions impacting the project owner's business operations.
  • In a supply contract, a manufacturer may seek a consequential damages waiver to limit exposure to losses incurred by the buyer's downstream customers due to supply chain interruptions.

The consequential damages waiver clause is a crucial risk-allocation tool, providing clarity and limitation on potential liability. By explicitly excluding certain types of damages, parties can better manage their exposure, fostering fair and informed contractual relationships.

How to manage clauses like these effectively?

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