Excluding liability on international construction projects | Practical Law

A table summarising whether local law allows exclusions of liability in construction and engineering projects, highlighting information from the PLC Cross-border Construction and Projects Handbook 2010/11.

Excluding liability on international construction projects

Practical Law UK Legal Update 0-503-6602 (Approx. 7 pages)

Excluding liability on international construction projects

by PLC Cross-border

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Published on 25 Oct 2010 • ExpandBelgium, Brazil, Canada (Common Law)...Czech Republic, France, Germany, Hong Kong - PRC, International, Ireland, Japan, Poland, Romania, Russian Federation, Slovakia, South Africa, Sweden, United Arab Emirates, United Kingdom, USA (National/Federal)

A table summarising whether local law allows exclusions of liability in construction and engineering projects, highlighting information from the PLC Cross-border Construction and Projects Handbook 2010/11.

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On any major international construction and engineering project, the value of the works and the nature of the parties involved means that there will always be discussions about risks and liabilities. Using information from the PLC Cross-border Construction and Projects Handbook, we have prepared a table setting out local laws that may affect the parties' ability to exclude liability in their contract.

On any major international construction and engineering project, the value of the works and the nature of the parties involved means that there will always be discussions about risks and liabilities. Question 10 of the PLC Cross-border Construction and Projects Handbook asks practitioners in 18 jurisdictions how liability can be excluded, for example in relation to indirect or consequential loss, and loss of business or profits. The table below provides a summary of the responses. For more details, click on the links in the table or refer to the Country Q&A tool, Question 10.

Exclusion of liability across 18 jurisdictions

Country	Can liability be excluded?
Belgium	Yes - even in relation to grave errors. However: Not where there is malicious intent. The content of the clause must be clear and unambiguous. The exemption clause is invalid if it deprives the agreement of any sense or meaning. The clause cannot contravene mandatory statutory provisions.
Brazil	Yes - a reasonable limitation of liability is allowed in relation to direct damages by means of excluding loss of business profits. The parties are normally excluded from liability for indirect damages under the Civil Code.
Canada	Yes - including for indirect or consequential loss, through exculpatory provisions. However: Any limitation or exclusion clause must be clearly articulated and clearly cover the circumstances that have arisen, as courts will limit liability clauses to the meaning of the words employed. Canadian courts will refuse to enforce exculpatory clauses in the case of fraudulent misrepresentation, negligent misrepresentation, breach of fiduciary duty, unconscionability or breach of a statutory prohibition. In February 2010, the Supreme Court of Canada set out a three part test to be applied in determining whether or not an exclusion clause is applicable: Whether the exclusion clause actually applies to the circumstances established in evidence. Whether the exclusion clause was unconscionable at the time the contract was made. Whether the court should refuse to enforce the valid exclusion clause because of the existence of an overriding public policy. In Québec, joint and several liability applies to the contractor, architect and engineer that directed or supervised a project, and the subcontractor, for any loss occurring within five years after the work was completed. This is a Public Order liability and cannot be contractually excluded or capped.
Czech Republic	No - liability for actual damage and loss of profit cannot be contractually excluded. Indirect or consequential losses are not recognised.
France	Yes - all liability can theoretically be excluded, with the exception of the legal warranties that builders must provide.
Germany	Yes - it is possible to agree on a limitation of liability for negligence. In individual contracts, it is acceptable to agree a cap on liability, and liability may be limited to direct damage and exclude indirect consequential damage. However, in standard terms and conditions (STCs) contracts, the contractor cannot rely on an agreement that excludes or limits the principal's rights based on defects if the contractor fraudulently concealed the defect or gave a guarantee for the quality of the work. In STC contracts, a limitation of liability to direct damage (excluding indirect consequential damage) is invalid, as is a limitation in the case of gross negligence. Other, narrow, limits may be available to the contractor. Liability for intentional damage cannot be excluded.
Hong Kong	Yes - however, liabilities for personal injuries and deaths cannot be excluded.
Ireland	General contractual liability is not usually limited or excluded in standard forms.
Japan	Yes - for example: Liquidated damages clauses are permitted. However, they may be unenforceable if the amount stipulated in the clause is far in excess of what might be considered reasonable. It is possible to provide for a cap on the limitation of liability.
Poland	Yes - including for lost profit. However, liability cannot be excluded: For damage arising from wilful misconduct. In respect of a contract between a business entity and a consumer. The concept of consequential loss is not recognised.
Romania	Yes - the parties can contractually exclude responsibility on any issue, provided that the damage was not caused intentionally or by serious fault of the contractor. However, the contractor's legal liability related to the quality of the construction works cannot be excluded. Under the Civil Code, the contractor is liable only for direct damages (effective damage and loss of profit), unless otherwise agreed by contract.
Russian Federation	Yes - contractually. For example for: Indirect or consequential loss. Loss of profit. Loss of business. In addition, construction contracts typically state that in addition to damage for losses, there will be a cumulative penalty for contractual breaches. Sometimes, the contract will provide that this cumulative penalty will be awarded instead of damages.
Slovak Republic	No - liability for actual damage and loss of profit cannot be validly contractually excluded. Slovak law does not recognise liability for indirect or consequential loss.
South Africa	Yes - for both: Consequential and indirect loss. Negligence. A party cannot exclude liability for intentional loss or damage.
Sweden	Yes - there is no obligation to indemnify for loss due to interruption or disturbance of industrial production or commercial activities under the standard forms of contracts. Any further exclusions of liability must be individually negotiated and expressly agreed for each project. Liability cannot be excluded for gross negligence and intentional behaviour.
UK (England and Wales)	Yes - contractually, primarily for consequential loss. What is deemed consequential loss turns on the individual facts of the case and the courts in some cases have found loss of profits to be direct loss. The types of losses should be carefully defined in the contract. Liability for death or personal injury cannot be excluded.
United Arab Emirates	Yes - clauses excluding liability for consequential losses, loss of production, loss of revenue and so on are generally enforceable. However, certain statutory terms cannot be excluded. For example: Contractors and architects (and other designers) are bound by strict decennial liability for dangerous or structural defects in buildings or other structures. Any provision which entirely exempts a guilty party from liability for breach of contract will be void. Either party can apply to the court (or arbitral tribunal) to override a contractually agreed compensation arrangement and adjust the specified compensation to make equal to the actual loss suffered. A court or arbitrator can reduce a contractual obligation to a reasonable level if the obligation is oppressive, there are exceptional circumstances of a public nature and the obligor is threatened with grave loss.
United States	Yes - by providing for: Limitation of liability. Caps on delay and/or performance liquidated damages. Waiver of consequential damages. The loss of business or profits can be direct or consequential.