The Verification Lab · For lawyers · Free
The limitation clause
The situation
You act for Kestrel Machinery Ltd, a supplier. Its customer, Brightwater Foods Ltd, a commercial bakery with 40 employees, claims £310,000 in lost profits after a £84,000 machine failed. Kestrel wants to know whether its contract protects it. You asked an AI assistant for a first memo and have the file open beside it.
What the AI was asked
Advise whether Kestrel can rely on clause 14 of the contract against Brightwater’s claim for £310,000 in lost profits.
Every court, statute and person in this exercise is fictional (the Republic of Eastmark). Use only the source pack below, as you would use the real documents: nothing outside it counts.
The AI’s memo
For each sentence, decide: is it supported by the source pack, or is there a problem? Choose the kind of problem if you can.
1.Brightwater bought the oven from Kestrel on 14 March 2023 for £84,000 under Kestrel’s standard terms, and it failed on 9 September 2023.
2.Clause 14 caps Kestrel’s total liability at the price paid, so on its face it limits Brightwater’s recovery to £84,000.
3.The Supreme Court held in Harrow Mills v Tindall Supply that a cap at the contract price is always reasonable between commercial parties.
4.Under section 12(2) of the Sale of Goods Act 1989, a limitation term in a contract that is not a consumer contract is effective only to the extent that it is reasonable under section 13.
5.This approach was confirmed in Calloway v Pemberton Steel [2021] ESC 17, where a cap was upheld against a business buyer with a single employee.
6.Clause 14 does not limit liability for fraud, or for death or personal injury caused by negligence.
7.Relevant factors include the parties’ relative bargaining strength and whether the buyer was offered an alternative, such as fuller cover for a higher price.
8.Brightwater had equal bargaining strength with Kestrel and carried insurance covering lost profits.
9.Clause 14 will therefore protect Kestrel in full, against any claim Brightwater might bring.
10.Any claim by Brightwater must be brought within six years of the breach under section 20.
11.Since Brightwater declined the enhanced cover, clause 14 must be reasonable.
12.Whether clause 14 is reasonable is therefore a question of fact and degree, turning on the evidence about the negotiation, the price and the availability of enhanced cover, and Kestrel’s position is arguable but not certain.
Professional skills training with fictional material. It is not legal advice and is not accredited by any court, regulator or professional body.
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