An exclusion or limitation of liability clause is a provision by which a party is either fully or partially discharged from the liability that would otherwise fall upon them under a contract, or by which the financial consequences of a breach are restricted. In contractual litigation, these clauses are often the most critical point of contention. While both legal systems recognise their validity, French and English law differ significantly in their construction. Below are some key distinctions.

Conceptual divergence: essence of the contract in France, letter of the contract in England

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In both jurisdictions, parties are free to allocate risk and adjust their liabilities by means of clauses exempting or limiting liability. However, the fundamental divergence lies in their underlying philosophy: substance versus letter.

In France, the freedom to limit responsibility ends where the "essence" of the contract begins:

• a limitation of liability clause that contradicts the scope of the commitment undertaken by the parties under the contract is deemed "unwritten" (Cass. com., October 22, 1996, No. 93-18.632, Chronopost);
• today, the Civil Code specifies that any clause that deprives the debtor's essential obligation of its substance is deemed unwritten (Civil Code, art. 1170).

In England, the judge respects the allocation of risks decided by the parties:

• exemption or limitation of liability clauses are valid because it is recognized that the parties to a contract, who are considered to have been able to negotiate on an equal footing, are free to allocate each person's responsibilities as they see fit (Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827);
• in business relationships, the parties are presumed to have equal bargaining power and the judge therefore does not have to intervene (Last Bus Ltd v Dawsongroup Bus and Coach Ltd [2023] 4 W.L.R. 80);
• Exemption or limitation of liability clauses must be clearly expressed (Ailsa Craig Fishing Co. Ltd v Malvern Fishing Co. Ltd [1983] 1 W.L.R. 964);
• when the wording raises doubts, a clause will be interpreted strictly in accordance with its terms (Saint Line Limited v Richardsons, Westgarth & Co. [1940] 2 K.B. 99);
• in case of ambiguity, the interpretation adopted will be” Contra Proferentem ”, that is to say against the party claiming the exemption (Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827);
• the terms used, the commercial meaning and the context must be sufficient to determine the meaning of the stipulations (K/S Victoria Street v House of Fraser (Stores Management) Ltd [2011] EWCA Civ 904, §68).

Fraud, gross or “deliberate” fault, and negligence

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In France, there is no clause limiting or exempting liability against fraud that shows an intention to harm its counterparty.

In England, the presumption is that an exemption from liability clause is not intended to cover cases of dishonesty (Mitsubishi Corporation v Eastwind Transport Limited [2004] EWHC 2924 (Comm)) or deliberate wrongful breach. It was held that there is a rebuttable presumption that the exemption clause is not intended to cover a deliberate and repudiatory breach of contract. Such a deliberate and voluntary breach could not be covered by the exemption clause, even drafted in broad terms. Indeed, extremely strong language and a clear statement to that effect would be required to persuade a court that the parties intended to cover such a case (Internet Broadcasting Corp Ltd v MAR LLC [2009] EWHC 84 (Ch).

In addition, in France, gross negligence also defeats the limiting clause (Mixed case, April 22, 2005, no. 03-14.112). Gross negligence is characterized, even without intent to harm, by a” extremely serious negligence, bordering on fraud and indicating the inability of the debtor of the obligation to perform his contractual mission ” (Cass. com., June 29, 2010, No. 09-11.841, Faurecia).

This is in line with the English idea of” gross negligence ”. However, where in France the judge will automatically rule out the limiting or exempting clause, the English judge will try to analyze the terms of the contract.

The English judge interprets in a particular way the cases of” Neglect ”, that is, breaches of a duty of care or diligence that is expected of a reasonable person. The clause cannot exclude this liability for” Neglect ” only insofar as the stipulation is express and clearly mentions cases of negligence (Canada Steamship Lines Ltd v The King [1952] A.C. 192).

Exemption clauses: shared vigilance

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In France, exemption clauses are monitored:

• the clause must not contradict the main commitment;
• Article 1171 of the Civil Code allows the judge to rule out the application of any clause creating a “significant imbalance between the rights and obligations of the parties” in an accession contract, that is to say not negotiated;
• Article 1190 of the French Civil Code states that” In case of doubt, the contract of mutual agreement is interpreted against the creditor and in favor of the debtor, and the contract of adhesion against the person who proposed it ”.

In England, there is a difference in approach depending on whether the clause is an exclusion clause or a limitation clause. The courts are more stringent when it comes to a clause that excludes all liability (Ailsa Craig Fishing Co. Ltd v Malvern Fishing Co. Ltd [1983] 1 W.L.R. 964):

• liability exemption clauses only apply to damage occurring within the strict framework of the obligations provided for in the contract, according to the principle of” Within the Four Corners of the Contract ” (Alderslade v Hendon Laundry, Limited [1945] K.B. 189);
• liability exemption clauses that are incompatible with the main purpose of the contract will be interpreted restrictively in order to preserve the meaning and effectiveness of the contract that contains them (Glynn v Margetson & Co. [1893] A.C. 351);
• Exemption clauses should normally not apply to liabilities incurred as a result of a fundamental breach of contract (” Fundamental Breach ”). However, it was noted that courts cannot rule out an exemption clause, however unreasonable it may be, if its terms are clear and have only one meaning (Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827).

The losses covered by the clause: the trap

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Under French law, compensable loss consists of what” is the immediate and direct result of the non-performance ” (Civil Code, art. 1231-4). The judge considers whether the damage is the necessary and unavoidable result of the fault:

• direct injury: the loss of the goods following a transport accident;
• indirect damage: the loss of a future contract that the victim hoped to sign with this commodity.

“Indirect” loss is excluded by law. Therefore, an exemption clause that would exclude indirect damages would simply repeat itself compared to article 1231-4 of the Civil Code.

In English law, things are not that simple. The direct/indirect loss distinction does not exist. To determine the type of loss concerned, the judge will apply the two branches of the test resulting from Hadley v Baxendale ([1854] EWHC J70):

• The” Direct Losses ”: these are the losses that naturally result from the breakup, according to the normal course of events. For example, if a party does not deliver a machine, the loss of production of that machine is a direct injury;
• The” Consequential losses ”: correspond to damages that do not result directly and naturally from the fault, but are the result of it and could have been contemplated by the parties at the time the contract was concluded. For example, if one party does not deliver a machine and, as a result, the other party loses a contract with a third party because it will not be able to sell the production of that machine to him.

The” Consequential losses ” may be included or excluded according to the terms of the limitation or exemption of liability clause. However, care must be taken with regard to the wording: it is preferable to agree on the definition of what is direct loss, a “direct injury” at the stage of concluding the contract. Consequential loss ” and to specify in the limiting or exempting clause what exactly is covered or not covered.

Many contracts subject to English law exclude” Consequential losses ” of responsibility. However, many actors think that this will rule out the loss of profit (” Loss of Profit ”) which under French law can be considered as direct or indirect. However, loss of profit is considered to be direct loss under English law; the parties would then still be responsible for the damages for” Loss of Profit ” if they only exclude liability for” Consequential loss ”.

In essence

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If you are a service provider, English law is your ally. It makes it possible to maintain a ceiling of liability even in the event of serious misconduct, provided that the precise terms are used and that the limitation or exemption clause is clear and unambiguous.

If you are a customer, French law protects you better against extreme exclusion and limitation of liability clauses. Article 1170 of the Civil Code is a powerful weapon to get rid of a ceiling that is too low that would make the provider's commitment irrelevant.

Whatever your role in the transaction, avoid the trap of copying and pasting contracts from French to English and vice versa. Insert a clause listing Consequential losses to the English version in a French contract is useless because the law already excludes them, but can become risky because it can create ambiguity about “direct” and therefore compensable damages.