In-House Legal Tip: Balanced Legal Risk

Best practice contracting recognises that a “balanced” approach to risk allocation drives better contract performance.

This being the case, “business as usual” contracting offers a predictability that can make contracting extremely efficient.

For example, for sensible counterparties who commit to best practice contracting where the parties end up on the below is extremely predictable:

1.  LIMITATIONS OF LIABILITY: sensible caps limited by reference to the contract value

2.  INDIRECT LOSSES: excluded for both parties

3.  INDEMNITIES: carefully crafted and subject to caps except for things like third-party IPR breaches

4.  WARRANTIES: meaningful and no less than is required so that the performing party is deemed reliable

5.  FAULT EXCLUSION: no party should be liable for losses directly caused by the other party.

Nothing in the above is controversial. Most reasonable parties will be happy ending up with these positions.

So, the key question to be asked early on is – “are you and your counterparty committed to best practice contracting?”

If the answer is yes – a lot of unnecessary negotiations can be dispensed with. A sensible first draft should get you on an “agreeable target” most of the time.

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