liability to the third party can be limited. Standard forms of warranty limit the contractor's liability to the costs of repair and include a net contribution clause; some forms of warranty also impose a financial cap on the damages recoverable.
Limitations on recovery of incidental and consequential damages
Consequential damages are damages that can be proved to have occurred because of one party's failure to meet a contractual obligation. They go beyond the contract itself and into the actions garnished from the failure to fulfil. The type of claim giving rise to the damages can affect the rules or calculations associated with a given type of damages, including consequential damages (eg, breach of contract versus a tort claim). To be awarded consequential damages in a lawsuit, the damages must be a foreseeable result of an act. In a contractual situation, consequential damages resulting from the seller's breach include any loss arising from general or particular requirements and needs of which the seller – at the time of contracting – had reason to be aware and which could not reasonably be prevented by cover (obtaining a substitute) or otherwise.
The parties can limit the liability on recovery of consequential damages by including a clause stating that neither party shall be liable for any special, indirect, incidental or consequential damages of any nature – including, without limitation, loss of profits, loss by reason of shutdown, and loss of use or interest, among other things. Two examples of such clauses are as follows:
"The Parties agree that neither party shall be liable to the other for any incidental or consequential damages of whatsoever nature, however caused, whether by the negligence of the party or otherwise."
"Neither Party shall be liable for any special, indirect, incidental or consequential damages of any nature, including, without limitation, loss of profits, loss by reason of shutdown, and loss of use or interest."
No liability for punitive damages
The parties may wish to consider agreeing to limit their respective liabilities for punitive damages. Most common law jurisdictions allow punitive damage awards only when the injuries complained of are attended by circumstances of malicious intent or flagrant disregard for the rights of the plaintiff. For example, neither party will be liable to the other for punitive damages and/or the court shall not have jurisdiction or authority to award punitive damages.
No damages recoverable for delay
A party may also attempt to avoid liability for specific acts, occurrences or omissions. One of the most common types of damage imitation clause in the construction industry is the 'no damage for delay' clause. However, most courts are reluctant to enforce such clauses automatically, although they are generally valid. The most successful arguments to avoid application of such clauses are as follows:
The delay was caused by the active interference (omission) of the client.
The delay arose from a cause not contemplated by the parties when entering into the agreement.
The delay is not within the specific wording of the clause.
A typical no damage for delay clause may read as follows:
"Contractor shall not be liable to Subcontractor for any delay to Subcontractor's performance of its work caused by the act or omission of the Client, or by any act beyond the Contractor's control. Or If Contractor's performance is delayed by non-negligent acts of the Client