Individuals and companies are generally free to choose the applicable law of a contract to which they are a party. The flexibility of choice can be displaced. If a choice cannot be ascertained, there are rules that will apply under UK Rome I. Generally, the choice of law will be that of the country to which the contract is most closely connected or where a relevant party has their “habitual residence”.

The law affords a great deal of flexibility in the form of a commercial contract. Contracts can be in writing, oral or arise by way of conduct. There are certain types of contracts that must be reduced to writing or executed in a specific way. Electronic contracts and electronic signatures are generally acceptable.

The main sources of legislation that have bearing on commercial contracts and/or the rights of the parties that have entered into them are as follows:

• Law of Property (Miscellaneous Provisions) Act 1989 – sets out many of the formal requirements that apply to certain types of contracts;
• Sale of Goods Act 1979 (SGA) – covers various requirements that will apply to a contract for the sale of goods, as well as the rights and remedies of the buyer and seller;
• Supply of Goods and Services Act 1982 (SGSA) – covers various requirements that will apply to a contract for services and the hire of goods, as well as the rights and remedies of the supplier and customer;
• Unfair Contract Terms Act 1977 (UCTA) – restricts contractual clauses in B2B contracts, primarily around limitations of liability;
• Consumer Rights Act 2015 (CRA) – the main piece of consumer legislation, which covers various requirements that apply between a trader and a consumer, the prohibition of contractual terms that are unfair to consumers and the various statutory remedies of consumers.
• Competition Act 1998 – prohibits agreements that are anti-competitive;
• Contracts (Rights of Third Parties) Act 1999 – permits a third party to enforce a contractual term for its benefit (unless excluded);
• Misrepresentation Act 1967 – covers liability for false statements made that induce individuals to enter into contracts; and
• Limitation Act 1980 – sets limits for bringing contractual claims (6 years for most contracts, 12 years for contracts executed as a deed).

In respect of the sale of goods in particular, the law of England and Wales broadly mirrors the United Nations Convention on Contracts for the International Sale of Goods (CISG). However, some fundamentals differ – for example, (i) consideration is not a requirement to vary an agreement governed by the CISG, and (ii) the CISG provides that risk passes with delivery, whilst under the SGA it passes when ownership passes unless otherwise agreed.

Aside from any form requirements or legislation that apply to all contracts, the law has specific rules and legal principles that apply to certain types of contracts. Examples not already referred to in the foregoing (eg, contracts for the sale of goods) include:

• agency staffing contracts – businesses that supply agency workers must set out certain key terms in the agency contract, including, for example, the worker’s start date, how long the contract is likely to last and the type of work to be undertaken;
• commercial agents – commercial agency contracts have sectoral specific rules, such as the principal’s duty of good faith and minimum notice requirements;
• construction contracts – “pay when paid” clauses in construction contracts are not permissible; and
• consumer credit agreements: the form and content of agreements for credit between lenders and consumers are tightly regulated.

Recent Court Decisions/Legal Developments

Over the last three years, there have been notable UK decisions and statutes affecting commercial contracts.

2025

Under the Arbitration Act 2025, the default rule is that the law of the arbitration seat governs the arbitration agreement unless the parties expressly choose otherwise.

In EE Ltd v Virgin Mobile Telecoms Ltd [2025] EWCA Civ 70: “lost charges” claimed after an exclusivity breach were, in substance, “anticipated profits”, so a profits-loss exclusion barred recovery.

2024

The Digital Markets, Competition and Consumers Act 2024 (DMCCA) introduced a new regime for consumer subscriptions, requiring clear cancellation routes and simple termination.

In Innovate Pharmaceuticals Ltd v University of Portsmouth Higher Education Corporation [2024] EWHC 35 (TCC), a limitation clause in a research agreement effectively limited liability even for an employee’s dishonest breach.

Meanwhile, in RTI Ltd v MUR Shipping BV[2024] UKSC 18, a reasonable-endeavours requirement in a force majeure clause did not oblige acceptance of non-contractual performance offered by the counterparty.

2023

In Barton & Ors v Morris & Anor [2023] UKSC 3, the introducer’s GBP1.2 million commission was payable only on a GBP6.5 million+ sale. With a GBP6 million sale and silence on lesser prices, no term was implied, and no unjust enrichment claim succeeded.

In Sara & Hossein Asset Holdings v Blacks Outdoor Retail [2023] UKSC 2, the landlord’s certificate was conclusive as to sums payable under a lease; the tenant had to pay but could later sue to recover charges allegedly outside the repairing covenant.

Trends

In terms of notable trends within the last 12 months, both the courts and the UK Government have been firmly getting to grips with how businesses and consumers interact in the digital economy and the tools that they use.

This trend can be seen in the recent DMCCA, which, amongst other things, adds new consumer-friendly rules around subscription contracts: one of the most common forms of contracts for consumers purchasing goods and services online. The Act also updates rules around fake reviews, with reviews being one of the key ways to stand out in the digital economy. This trend can be seen in the courts, too. In Jaevee Homes Ltd v Fincham [2025] EWHC 942 (TCC), it was held that contracts can be entered into via WhatsApp.

Finally, it is hoped that, in light of (i) the UK government’s consultation on copyright in AI systems (published December 2024), (ii) the implementation of the Data (Use and Access) Act 2025 (which requires the UK government to progress AI-related legislation) in June 2025, and the upcoming judgment in Getty Images v Stability AI, there will be substantive law that addresses how AI tools and the content generated by them can be adequately licensed in a commercial contract. Currently, the legal approach differs to quite a significant degree between lawyers – leading to protracted negotiations and uncertainty in licensing arrangements.

If a governing law is not expressly chosen, it is possible for the courts to imply a choice of law, provided that the choice is sufficiently clear. That implied choice can be any governing law, not just the law of England and Wales. If the choice is not sufficiently clear, UK Rome I will apply.

UK Rome I

Where the parties do not agree on a choice of law, the general position is that the law that governs the contract will be the law of the country where the party required to effect the characteristic performance of the contract has their habitual residence.

Characteristic performance does not have a certain meaning, but in Recital 19 to UK Rome I it was explained that it should be determined with reference to the contract’s “centre of gravity”.

There are special rules for certain types of contracts; for example, for contracts for the sale of goods, the governing law is the law of the country where the seller has their habitual residence. If more than one special rule applies, the default characteristic performance rule applies.

It is possible for the court to override the rules if a contract is in any event “manifestly more closely connected” with another country. 

Artificial Governing Law Clauses

UK Rome I curtails the ability of parties to choose a governing law in order to avoid the laws of a country that cannot be derogated from by agreement. A good example is the UCTA. This applies in situations where all elements (other than governing law and jurisdiction) “relevant to the situation” are located in a country other than the country whose governing law applies. In other words, if a party based in England contracting with another English party imposed a particular governing law to avoid UCTA, UCTA would continue to apply in full. 

The prohibition on artificial governing law clauses does not disapply the whole of the choice, just the relevant aspects of the other country’s law that cannot be derogated from by agreement.

Overriding Mandatory Provisions

Where an English or Welsh court is hearing a contractual claim governed by a foreign law, UK Rome I provides that the law of England and Wales will prevail (to the extent required) insofar as those laws are “crucial for safeguarding public interests, such as its political, social or economic organisation” (“overriding mandatory provisions”). Examples include criminal acts, such as cartels or the avoidance of UK sanctions.

Unlawful Performance

UK Rome I also specifies that overriding mandatory provisions of another country may (it is a discretionary obligation) apply to a claim, irrespective of the governing law of the contract, if the performance of the contract took/is to take place in that other country and the overriding mandatory provisions of that other country would render performance unlawful.

Certain Types of Contracts

There are specific rules that apply to certain types of contracts – both in UK Rome I and more widely in UK legislation. In a commercial context, for example, parties are not free to choose a law that would deprive a consumer of their protections under the law of the jurisdiction where the consumer has their habitual residence or (for UK consumers) where the contract has a close connection with the UK. In such circumstances, the relevant consumer protection law would override any contractual terms to the contrary.

Exception

Under UK Rome I, the court can choose not to apply a law of a foreign jurisdiction that would be “manifestly incompatible” with public policy.

Contractual parties are largely free to submit themselves to a foreign jurisdiction, irrespective of whether one or all the parties are based in England and Wales.

The UK has acceded to the Hague Convention on Choice of Courts Agreements, which obliges the courts to respect exclusive jurisdiction clauses between signatory states. For non-exclusive jurisdiction agreements, or in an absence of choice, the common law rules largely apply. In such circumstances, a foreign jurisdiction may be sought by an English, Welsh or foreign party. That choice can be resisted by a party on the basis that the dispute is better suited to England and Wales. That resistance would require an application to the court and, if necessary, anti-suit injunction(s) in the relevant jurisdiction(s).

Conversely, submission to the jurisdiction of England and Wales based on the common law rules can be resisted. If the dispute is better suited to a foreign jurisdiction, permission to continue the claim in England and Wales may be refused. The most significant carve out in a commercial context is choice of jurisdiction in consumer cases. UK consumers are entitled to sue both UK and foreign businesses (provided that such foreign businesses are connected to the UK or a part of it) in the court in which they have their domicile.

One or more parties to a contract based in England and Wales are free to agree on arbitration. Arbitration is available in most commercial disputes in England and Wales, although there are carve outs for insolvency situations and, generally, cases involving the rights or obligations of third parties who do not agree to submit to arbitration. If arbitration is validly agreed and the dispute is capable of arbitration, that agreement is highly likely to be enforced.

Role of the Courts

Initial challenges to arbitration proceedings

Parties are free to challenge, in court, the submission of claims to arbitration. This may be challenged by any other party, and an application for a stay of court proceedings can be sought. A stay will not normally be granted unless it can be demonstrated that the court proceedings are in breach of a valid arbitration agreement.

Intervention

The court is only empowered to intervene in valid arbitration proceedings to:

• order a party to comply with a peremptory order made by the arbitration tribunal;
• grant injunctions in specified circumstances (eg, to preserve evidence or assets);
• determine a question of law that has arisen during arbitration proceedings; or
• require a witness to give evidence.

Parties may agree to contract out the court’s rights to intervene, except its powers in respect of witnesses.

Appeal

In England and Wales, it is possible to challenge an arbitral award or proceedings (in the UK and arbitrations carried out in foreign jurisdictions) in line with the New York Convention, namely on the basis of:

• jurisdiction;
• serious irregularity; or
• an error of law.

Application of local law

The law of England and Wales will apply to arbitration seated in that jurisdiction unless it is expressly agreed otherwise. This applies whether one or all of the parties are based in this jurisdiction or otherwise. 

If a foreign law is agreed upon, an arbitral tribunal has jurisdiction to determine the claim under that foreign law. Irrespective of the foreign law chosen, the Arbitration Act 1996 will apply to the procedural framework of the dispute, although party-chosen rules can replace the “non-mandatory” parts of that Act.

In accordance with the New York Convention, the courts are expressly empowered to refuse the award on the grounds of incompatibility with public policy. In England and Wales, this is unusual, and the general position favours enforcement. For consumers, it is to be noted that an arbitration agreement may be considered an “unfair term” prohibited by the CRA – in which case the court’s jurisdiction could be maintained even if the consumer agreed to arbitration.

Contracts can be formed and concluded orally, in writing or by conduct (or a mix of all three). Writing is typically held to include “typing, printing, lithography, photograph and other modes of representing or reproducing words in a visible form” in line with applicable legislation. This would include digital forms of writing that is visible to the human eye, including email and instant messaging.

There are specific types of contracts or contractual terms that are required to be reduced to writing. These include (without limitation):

• contracts executed by deed;
• the assignment of copyright; and
• consumer credit agreements.

The law does not recognise the concept of culpa in contrahendo. There are various exceptions to the non-enforceability of statements made outside the terms of binding contracts, such as the following.

• Claims for misrepresentation: False statements that induce a party to enter into a contract can be actionable. Depending on the misrepresentation claimed (fraudulent, negligent or innocent), the claimant can be entitled to “rescind” the relevant agreement and/or claim damages.
• Contractual misrepresentation: Pre-contractual statements can become terms of the contract by way of implication (see 3.4 Application of Local Law on Standard Terms). Breach of those terms can give a claimant the right to terminate the agreement and/or claim damages, subject to any relevant contractual limitations or exclusions.
• Misstatement: If a contract is not formed, false statements made in a commercial context can be actionable in scenarios where the party making that false statement owed a “duty of care” to the innocent party. The innocent party in that scenario would be entitled to non-contractual damages.
• Restitution: In narrow contexts, there are rights in restitution available to parties that do not enter into formal contracts but subsequently act as if they have done so, meaning that the terms of pre-contractual negotiations can be enforced. The remedy is to reverse the offending party’s gain and put the innocent party in the position they were in before the offending party was “unjustly enriched.” 

Standard terms can be incorporated into a contract by:

• setting them out in full; or
• referring to them (eg, in a hyperlink).

If standard terms are to be incorporated by reference, the other party must first be given a reasonable opportunity to read them. For example, standard terms and conditions that are illegible or unobtainable will not have contractual force.

The basic principles of English and Welsh contract law apply to standard terms as they do to other contracts.

• Interpretation: The express terms of the contract can be supported or challenged on the basis that they have a particular meaning. The courts will have primary reference to the words of the contract. In situations where words or terms conflict, this can affect the enforceability of the contract. However, all relevant external factors can be admitted to support or counter an interpretation.

• Implied terms: The courts are free to read beyond the express terms of a contract and hold that the contract contains certain “unwritten” terms – so-called implied terms. These are generally divided into terms implied in fact and terms implied by law.
• Terms implied in fact include:
1. terms that can be inferred from the express terms themselves (provided these are obvious);
2. terms that are necessary to make the contract work; and
3. terms implied by a trade or custom.
• Terms implied by law include:
1. that the seller of goods has the right to do so;
2. that services will be provided with reasonable care and skill; and
3. certain consumer rights obligations.

Parties can agree to exclude certain implied terms, but not all of those implied by law. The presence or absence of implied terms may significantly affect the implications of standard terms or any other contract.

Specifically in respect of standard terms in a B2B contract, the primary legal control is around liability. UCTA has standard controls that apply to all contracts. In respect of standard terms specifically, UCTA will invalidate “unreasonable” (see 5.4 Contractual Limitation on Liability) terms that:

• limit liability for breach of contract; or
• entitle the party to not perform their obligations or render them in a manner that is “substantially different” to what was reasonably expected.

The CRA applies to standard terms as well as any other contract between a trader and a consumer. As discussed at 4.1 Different Laws and 4.2 Consumer Protection Rights, the CRA will control the content of standard terms. These examples are in addition to the specific requirements of legislation applicable to certain types of contract (whether on standard terms or otherwise), as touched on in 1.4 Mandatory Rules for Specific Contracts.

There is no general concept of “unreasonable disadvantage” that would serve to invalidate standard terms. However, certain provisions of standard terms (or any contract) can be invalidated on the basis (in whole or in part) of inequality of bargaining position. For example, the test for “unreasonableness” under UCTA (see 5.4 Contractual Limitation on Liability) in the context of limitation of liability clauses explicitly refers to inequality of bargaining position.

In addition, applicable regulatory guidance on the CRA refers to the imbalance of power giving rise to a potentially unfair consumer term that would be invalidated under the CRA (see 4.1 Different Laws).

The battle of the forms is typically dictated by the “last-shot” doctrine: the party that had the last word (in putting forward its terms) prevails.

The last shot doctrine can be avoided where:

• the documentation or correspondence passing between the parties indicates that terms other than those last stated prevail; or
• it can be demonstrated that the parties would not agree to be bound by the other’s terms, in which case no contract is formed. 

It is generally accepted that there is no difference between original (“wet-ink”) signatures and electronic signatures, provided that:

• the person signing the contract intended to do so;
• any additional formalities are complied with (eg, requirements in a company’s constitution); and
• the relevant contract does not stipulate a particular requirement.

Whether the signature is electronic or in wet ink, most commercial contracts do not require a signature to have full effect unless this is a requirement of the contract itself. The exceptions to this rule generally mirror the requirements for written contracts (see 1.4 Mandatory Rules for Specific Contracts). In addition, where a contract is required to be registered (see 3.8 Official Registration), certain registries will only accept wet-ink signatures.

In addition, certain contracts must be made by deed. Examples include:

• transfers of land;
• powers of attorney; and
• agreements entered into without consideration (see 3.9 Further Requirements).

Execution by deed is also a requirement if the parties seek to extend the limitation period for contractual claims from the standard 6 years to 12 years.

Deeds must be signed (in wet ink or electronically) and the signature witnessed (unless the party is a company). The witness must be physically present when the signature is set down. A notary is not required to be the witness.

Most commercial contracts do not need to be registered.

Certain transactional documents and/or contracts do require registration to have full effect; for example:

• transfers of land must be registered at His Majesty’s Land Registry; and
• assignments of registered trademarks must be registered with the UK Intellectual Property Office.

The following is required to form a contract:

• offer – an offer requires the putting forward of the goods, services or other benefit together with all the terms that are meant to form part of the relevant contract; and
• acceptance – to accept an offer, the offeree must give their unqualified consent to the offer. The offeror does not need to ratify the acceptance in any way.

The imposition of new terms by the offeree is a counteroffer, which must be consented to by the other party before a contract can be formed. A request for further information about the original offer is not a counteroffer.

Acceptance must be communicated to the offeror. If the offeror is unaware that its offer has been accepted, a contract may not be formed. Acceptance can be communicated by conduct, but the circumstances in which this will be accepted as valid are narrow.

For a contract to be binding (unless it is executed as a deed), a form of payment (“consideration”) must be given in return for the benefit derived. That consideration does not need to be adequate, but it must have value.

In commercial circumstances, it is assumed by the courts that the parties intended to be legally bound by the contract (ie, to create legal relations). However, parties are free to agree that they will not be bound – this is common, for example, in the preliminary stages of corporate transactions when heads of terms are agreed.

Concerning certainty of terms, if all essential terms of the contract cannot be ascertained, the contract will fail to be formed. Essential terms are those necessary for the contract to function, such as price or the amount of goods to be sold. Because the law allows for implied terms (see 3.4 Application of Local Law on Standard Terms), many commercial contracts that are potentially uncertain can be “rescued” by the courts to ensure that they remain enforceable.

B2B

In B2B scenarios, businesses and legal practitioners will mainly have regard to the following.

• The SGA: Sets minimum contractual requirements and inter-party obligations around the sale of goods. Many, but not all, of these requirements can be contracted out of by mutual agreement. See 5.2 Punitive Damages and Liability Caps.
• The SGSA: Sets minimum contractual requirements and inter-party obligations around the provision of services and the hire and transfer of goods. As in the foregoing, many, but not all, of these requirements can be contracted out of.
• UCTA: See 5.4 Contractual Limitation on Liability.

There are many other sources of legislation in England and Wales that can have bearing on the contents of a B2B contract, including the legislation referred to in 1.3 Application of Local Legislation to Commercial Contracts as well as the following.

• “Failure to prevent” legislation: The UK has imposed various requirements on businesses to prevent certain types of criminal activity, which is dealt with in part by the imposition of contractual obligations. Examples include:
1. the Bribery Act 2010 (failure to prevent bribery);
2. the Economic Crime and Corporate Transparency Act 2023 (failure to prevent fraud); and
3. the Criminal Finances Act 2017 (failure to prevent tax evasion).
• The Late Payment of Commercial Debts (Interest) Act 1998: Provides for the payment of interest on debts if not already dealt with in the relevant contract.

B2C

CRA

The CRA sets minimum contractual requirements for a contract between a consumer and a trader. This is similar to how the SGA and the SGSA operate in a B2B context, but the standard for consumers is, in general terms, higher. The standards set by the CRA cannot be contracted out of by mutual agreement, unlike in a B2B scenario (in general).

The CRA also regulates potentially “unfair” contractual terms that could be imposed on consumers. Unfair terms are not binding on the consumer. A term is unfair if, “contrary to the requirement of good faith”, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer. The CRA itself sets out a “grey list” of terms that may be considered unfair, such as rights allowing a trader to vary the terms of a contract without notice.

DMCCA

The DMCCA sets out a number of commercial practices (aimed at traders selling to consumers) that are unfair and therefore unlawful in the UK; for example, a misleading act or omission. The DMCCA also sets out a number of practices that are automatically unfair, such as claiming to be a signatory to a specific code of conduct when the trader is not.

It also contains important provisions around subscription contracts for consumers, making it easier for consumers to cancel subscription contracts.

The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (CCRs)

The CCRs set out a number of requirements on traders to provide certain “pre-contract” information to the consumer (such as the price of the service, cancellation rights and any guarantees). Pre-contract information must match with the express or implied terms of the resulting consumer contract, as the pre-contract information is deemed incorporated into a contract between a trader and a consumer.

Consumers, like any other individual or organisation, are entitled to common law remedies if a trader falls short of its contractual or other legal obligations. These rights include:

• a claim for damages (see 5.1 Concept of Liability);
• requiring that the contract is performed as agreed (“specific performance”); or
• the right to terminate the relevant contract (but see the following).

Statutory rights under the CRA are more expansive than a consumer’s common law rights. The main rights are as follows.

• Goods must:
1. be of satisfactory quality and as described;
2. match any sample or model;
3. be installed correctly by the seller (if installation is part of the contract); and
4. be delivered on the agreed date/time or in conformance with statutory limits on delivery time (maximum of 30 days).
• Digital content must be:
1. of satisfactory quality and as described; and
2. fit for purpose.
• Services must be:
1. provided with reasonable care and skill;
2. performed in line with the trader’s description of the service; and
3. performed within a reasonable time (what constitutes a reasonable time is a question of fact).

Consumers are entitled to statutory remedies in the event that a trader breaches these rights. For goods, the usual remedy is a 30-day return period for defective products. Consumers of goods are also entitled to repair, replacement or a price reduction, depending on the breach and the circumstances.

Under the CCRs, consumers are also entitled to a minimum 14-day cooling-off period for goods purchased at a distance (by post, phone or online). That means such goods can be returned within that period for any reason.

For services, the minimum 14-day cooling-off period applies. Outside of that period, consumers are entitled to request repeat performance or a reduction in price under the CRA, depending on the breach and the circumstances. There is no cooling-off period for goods or services purchased in person, but traders can offer their own terms in this respect and frequently do so.

There are no statutory cancellation rights or cooling-off periods for digital content, but if the digital content is defective a consumer is entitled to repair, replacement or a price reduction, depending on the breach and the circumstances.

Consumers are entitled to these remedies in addition to their common law rights (provided that double recovery – see 5.1 Concept of Liability – is avoided). However, some statutory rights in respect of goods curtail the ability of consumers to treat the contract as terminated at common law.

The core concept of liability for contractual claims is that the successful claimant ought (insofar as is possible) to be put in the position the claimant should have been in if the contract had been fully performed.

In light of this general concept, the following core principles are relevant.

• The obligation to pay damages is not absolute. The court recognises that assessing damages is not an exact science. The courts frequently rely on percentage-based measures that they decide are reasonable and just in the circumstances.
• Gains by the claimant are not ignored. If the claimant gains as a result of the breach (eg, by saving costs) or enjoys an asset that has been partially delivered, credit must be given for that benefit.
• The defendant is not obliged to act in the most advantageous way. If a contract breaker had discretion to perform their obligation, the court will not impose liability on the basis that the contract breaker should have acted in a manner that was most advantageous to the claimant.
• The level of damages is generally assessed at the time of the breach.
• No double recovery. A claimant cannot recover twice for the same loss.
• There are various ways to measure damages. Different methods can result in different amounts. The claimant is not allowed to choose the most advantageous method – the court decides.
• The amount of damages payable as a result of a breach can be fixed by the parties, subject to certain controls (see 5.2 Punitive Damages and Liability Caps).

It should be noted that the courts are not wholly confined to the core principles and the award of damages as compensation for loss. The courts may order a breaching party to fulfil their obligations and/or to refrain from further breaches (an order for specific performance and an injunction, respectively).

The courts may also award sums that go beyond losses actually suffered by a claimant. For example, compensation can be given:

• for the loss of opportunity to participate in the profits that the defendant would have made as a result of the breach (ie, by awarding a sum of money for what the defendant would have paid to get out of the obligation – so called “negotiating damages”);
• to deprive the defendant of the profits made by their breach (an “account of profits” – although this is rare in contract cases); and
• for the value the defendant has got from using a claimant’s property in breach of contract (eg, using a rental property without payment).

Punitive Damages

In pure breach of contract cases, punitive damages are not available. In non-contractual cases, punitive damages may be available, but they are highly curtailed.

As set out in 5.1 Concept of Liability, the parties can agree on the payment of damages and their amount in specific contexts. However, the law forbids contractual clauses that are actively punitive – so called “penalty clauses”. If set payments for breach of contract are envisioned, these must be reasonable and propionate to protect a party’s legitimate interest(s) – such interest(s) can be wider than mere compensation for financial loss. 

Restrictions on Liability

Categorical restrictions

The general position is that contractual damages are recoverable for all types of financial loss, subject to niche exemptions. This loss is unlimited, subject to the following restrictions. Conversely, non-financial losses are not ordinarily recoverable, unless such non-financial loss falls into a specific exception. These exceptions include (in certain circumstances) pain, inconvenience, distress, loss of enjoyment or loss of reputation.

General restrictions

Liability for damages of any type is governed by three core principles that may affect their recovery. 

Causation

For losses to be recoverable, the defendant must be the dominant cause of that loss. If a third party or the claimant themselves intervenes in some way following that breach, all or part of the loss suffered may not be the defendant’s responsibility.

Remoteness

Losses that are too remote are not recoverable as damages. What is meant here is that a type of loss is recoverable only to the extent that, at the time the parties entered into the contract, it was reasonably foreseeable by them as a consequence of the breach itself.

What is foreseeable is not something that is merely possible, but it must be “not unlikely.” This contractual standard is higher than in non-contractual claims. What is not unlikely is a type of loss that would result in the ordinary course of things – this is what is sometimes called “direct loss” (eg, loss of profits).

Where a type of loss is contended as being outside the ordinary course of things, a defendant can still be liable if it can be shown that the losses were something that the defendant knew or should have known would occur as a result of the breach. Such losses are typically not recoverable.

In recent years, the concept of remoteness has been subject to judicial scrutiny. It is now possible to argue that losses will be too remote if it can be demonstrated that the defendant did not assume responsibility for them – but this should not displace the longstanding “foreseeability” test. 

Mitigation

If a defendant breaches a contract, the claimant is under a duty to mitigate their loss. What this means is that a claimant cannot recover losses that it could have avoided by taking reasonable steps. If a claimant goes beyond those reasonable steps, the losses avoided over and above what was legally required of them are likewise not recoverable.

As an exception, it is possible for parties to agree to vary the rules on mitigation and remoteness by agreement within the contract. 

Contractual limitations

As discussed in 5.4 Contractual Limitation on Liability, what damages are recoverable may also be limited by the relevant contract itself.

The general position is that actions for breach of contract arise irrespective of fault: either the party performs its contractual obligations, or it does not. 

The strictness of the obligation (or the relevance of fault) can be modified by the contract itself. Legislation can also modify liability without fault. For example, defences can be raised against a contractual claim for negligence where the responsibility for the contractual negligence rests with a third party. 

Conversely, non-contractual claims between parties generally require an element of fault (whether intentional or unintentional) and/or deliberate wrongdoing. The most significant carve outs in a commercial context are:

• manufacturer’s liability – all manufacturers of “consumer products” and “products used at a place of work” (the latter can encompass B2B sales) are liable to those that are injured by such products without any obligation on the innocent party to prove negligence or fault; and
• vicarious liability – employers can be held responsible for the acts or failures of their employees (or other workers, agents or contractors), even if the conduct was not authorised by the employer.

Contractual limitations of liability are generally permitted, subject to certain controls.

Common Law Controls

There are very limited case law controls of contractual limitations of liability. The two most important are as follows.

• No exclusions for fraud: A contract cannot limit liability for fraud. It is theoretically permissible under English and Welsh law to exclude liability for the fraud of third parties/personnel (eg, employees) – but this is a very uncommon exception in any event.
• Effect of misrepresentations: If a party misrepresents the effect of a contractual limit of liability, it will not be entitled to rely on that limit.

Statutory Controls

The two primary statutory controls on liability are UCTAand the CRA.

UCTA

UCTA will act to control, in any non-consumer contract (or contractual notice), terms that exclude or restrict liability. As such, it influences both contractual limits and contractual disclaimers that absolve a party of all liability in a specific context.

The key points are as follows:

• death or personal injury – no contract can limit or exclude liability for death or personal injury caused by negligence; and
• other loss or damage – no contract can limit or exclude liability for other types of loss and damage caused by negligence (eg, damage to property or economic loss) unless it is reasonable to do so.

The reference to reasonableness imparts a test that the term must be “fair and reasonable… having regard to the circumstances which were, or ought reasonably to have been known to or in the contemplation of the parties when the contract was made”. There is a schedule at the back of UCTA which provides a non-exclusive guide to what may not be reasonable, which includes factors such as:

• strength of bargaining power;
• inducements;
• knowledge of the term; and
• whether acceptance of liability is subject to a condition.

In addition to the overarching UCTA controls on negligence referred to in the foregoing, there are specific controls on standard terms – see 3.4 Application of Local Law on Standard Terms.

CRA

The CRA will invalidate any term of any consumer contract that is unfair. In this context, significant and/or disproportionate disclaimers of liability to consumers are likely unfair. Under the CRA, it is irrelevant whether the contract is on standard terms or individually negotiated.

The law caters for the doctrine of “frustration” which can be relied on by a party to obtain relief from performance where there has been a supervening event, not contemplated by the parties, that so significantly changes the nature (not merely the expense or onerousness) of the rights/obligations that it would be unjust to hold the parties to the contract. Relevant examples include extreme weather events, government intervention (or changes in law) or armed conflict. Where such events cause delay as opposed to a total block on performance, the delay must be sufficiently severe.

If a party can reasonably mitigate the consequences of the frustrating event to the point where the test is not met, then frustration will not be available (ie, self-induced frustration is not permitted). If a party is successful in claiming frustration, only the parties’ future obligations as to performance are unenforceable. Obligations that are already in force and/or survive termination will continue to apply (eg, confidentiality obligations).

It is common for professionally drafted commercial contracts to contain force majeure provisions.

Force majeure clauses are typically more generous than what is permitted under the doctrine of frustration. For example, less serious events could be catered for, or the parties could agree to suspend performance for a period of months.

Force majeure clauses, properly drafted, will override the frustration doctrine. But the absence of a force majeure clause (or a defective clause) will leave the doctrine available.

There is no general principle of hardship in English and Welsh law. As discussed in 6.2 Force Majeure Clauses, mere hardship or lack of profitability cannot be invoked as a ground for frustration. English case law has also established that hardship is not applicable in the context of force majeure (unless expressly agreed between the parties). 

It is not standard practice for hardship clauses to be included in commercial contracts. However, it is not uncommon to find such provisions in multi-year supply contracts.

Goods

Warranties

There are a number of provisions under the SGA that imply terms into a contract for the sale of goods. Properly, many of the most important implied terms (those set out in the following) are not classed as “warranties” but rather “conditions” of a contract. A breach of a condition, as opposed to a warranty, gives the innocent party additional remedies (discussed in the following).

The main terms implied under the SGA in respect of contracts for the sale of goods are:

• that the seller has good title to the goods being sold;
• goods must correspond with their description (or sample, if by sample);
• goods must be of satisfactory quality (meaning that they must meet the standard “that reasonable person would regard as satisfactory, taking account of any description of the goods, the price (if relevant) and all the other relevant circumstances”); and
• goods must be fit for the purpose that they are bought for (if the buyer makes that purpose known to the seller).

Delivery of goods is not dealt with by way of an implied contractual term per se, but delivery is dealt with by the SGA in the following manner: 

• if a delivery date is not specified by the contract, goods must be delivered within a reasonable time (what is a reasonable time is a question of fact); and
• if goods are to be collected, they must be available for collection (in return for payment) at any time (provided it is a reasonable hour to collect the goods in question) after the contract is made.

Similarly, in regard to payment:

• the SGA merely requires that time for payment is not of the essence (meaning that late payment is possible and, in such circumstances, will not normally be treated as a breach of a condition of the contract) unless the parties agree otherwise; and
• if timing for payment is not fixed by the contract, the obligations to deliver and pay for the goods are concurrent.

Seller’s remedies

The seller has a number of remedies under the SGA, including but not limited to the following.

• Bringing a claim for the price (where title in the goods has been transferred to the buyer).
• Claiming damages for non-acceptance.
• Exercising a “lien” over goods (in which title has passed to the buyer), which can result in a result in a valid resale of the goods to a third party.
• Withholding delivery (where title remains with the seller).
• If a seller has not been paid pursuant to the terms of the contract, the seller can resell the goods in certain situations (eg, where title has been transferred to the buyer) or withhold delivery until payment has been made. Alternatively, if title has been retained by the seller, the seller can terminate the agreement; and
• If title has been transferred to the buyer.

Buyer’s remedies

Equally, the buyer has a number of remedies under the SGA, including but not limited to the following.

• A right to reject the goods, provided that the seller has breached a “condition” of the contract (see the foregoing) as opposed to a warranty. What constitutes a breach of a warranty or a condition can be modified by the parties themselves.
• If a warranty is breached, then the buyer may only claim damages (which is typically a claim for diminution of value as a result of some defect in delivery or in the goods themselves).
• Damages for non-delivery.
• Specific performance (requiring the seller to perform its contractual obligations).

Both the buyer and the seller also retain their rights at common law, such as the right to treat the contract as terminated and claim damages or for damages as a result of delay in delivery (delay in delivery is not explicitly provided for under the SGA).

Services

Warranties

Contracts for the supply of services are governed by the SGSA. The SGSA will imply three key terms into such a contract.

• That the services will be provided with reasonable care and skill: What is “reasonable” is determined by what a reasonable third party would expect to be provided by the supplier, or, if the supplier is a professional, what a competent professional would have done in the same circumstances.
• That the services will be carried out within a reasonable time, if not specified by the contract or determined by the parties’ “course of dealing”: What time is reasonable is a question of fact.
• That the customer will pay a supplier a reasonable charge (if the contract hasn’t fixed a price): Again, what is reasonable is a question of fact.

These terms are neither “conditions” nor “warranties” but a middle ground between the two concepts (unless the contract provides otherwise). Therefore, the remedies are determined by the severity of the breach itself.

Remedies

There are no statutory remedies for breach of the SGSA implied terms. The customer would have to rely on their common law remedies to either treat the contract as terminated and claim damages (for breaches of a condition or a term that is not a condition but where the breach is severe) or merely to claim damages.

Consumer Contracts

The CRA contains numerous terms (most of them being conditions) that would be implied into a consumer contract. See 4.1 Different Laws.

Goods

The law permits derogation from most of the SGA implied terms. However, the term as to good title cannot be derogated from. The terms as to description (including description by sample), satisfactory quality and fitness for purpose may be derogated from, provided that it is “reasonable” to do so. The test for reasonableness is pursuant to the UCTA (see 5.4 Contractual Limitation on Liability).

The rights and remedies of the buyer or the seller can be modified or superseded by the contract itself.

Services

The SGSA expressly states that contractual parties may exclude, vary or negate the SGSA implied terms. This can happen as a result of:

• express agreement as part of the contract (which either directly excludes the SGSA implied terms or has a contractual term that is otherwise inconsistent with one or more of them);
• a term that is implied by trade custom into the relevant contract; or
• the parties’ course of dealing.

Most attempts to derogate from the SGSA implied terms will be construed as limitations of the supplier’s liability. Accordingly, UCTA will apply. It most commonly applies in circumstances where the parties have varied or excluded the implied term of reasonable care and skill. Breach of that term is equated, in law, with negligence – therefore, the controls around excluding liability for negligence will directly apply. As in the foregoing, such exclusions will only apply if they are reasonable.

Consumer Contracts

Almost all attempts to substantially deviate from the terms implied by the CRA would be “unfair” and therefore prohibited. See 4.1 Different Laws.