Constantinople, Not Istanbul? How to Take on a Tough Limitation of Liability Negotiator
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You might be a huge fan of the famous song, “Istanbul Not Constantinople”. Believe it or not, the song inspired me to take “History of the Ottoman Empire” in college. During the course, my professor mentioned that another academic (who must have hated the song!) often criticized him for referring to the Turkish metropolis as “Istanbul” because he felt strongly that “Constantinople” is the correct term. This is odd and would be quite the surprise to the millions of Turks who live there (above is a picture of the Blue Mosque during my trip to Istanbul). After all, the city changed names in 1453. If over four centuries of name usage isn’t good enough for you, I’m not sure you’ll ever be convinced.
A similar phenomenon occurs when you try and convince someone who is undeniably wrong that the provision which they want to use in their contract is unenforceable and therefore not worth negotiating. This often occurs with the limitation of liability clause, especially because it’s the most negotiated clause across most contracts (catch our earlier posts on limit of liability consequential damages here and hard cap liability limits here). Let’s take a look at a typical liability disclaimer: SUBSCRIBE TO WHICHDRAFT NOW! Click Here!
CONSULTANT IS NOT LIABLE TO CLIENT OR ANY THIRD PARTY UNDER THIS AGREEMENT FOR ANY DIRECT, INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, EXEMPLARY, OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR RESULTING FROM THIS AGREEMENT. THIS PROVISION LIMIT’S CONSULTANT’S LIABILITY REGARDLESS OF THE THEORY OF LIABILITY, INCLUDING NEGLIGENCE, TORT, CONTRACT OR ANY OTHER CLAIM.
This clause suffers from overreach. Basically, it’s saying that the client can’t sue the consultant for anything. Under this concept, consider the following:
- What if the client pays the consultant a $10,000 up front fee, and the consultant absconds without doing any of the required work?
- What if the consultant, while visiting the client at her offices, covertly takes a photograph of a document containing the client’s prized trade secret, then sells that document to the client’s biggest competitor?
- What if during this visit, the consultant is having a terrible, awful, really bad day and kicks an expensive piece of machinery, damaging it and necessitating an expensive repair?
- What if the consultant argues with a client employee and, in anger, strikes the employee and sends him to the hospital with a severe injury?
Do you think that any limitation of liability clauses would be enforced by a judge in court to protect the consultant from liability? No judge would do so. The client could successfully pursue claims of unjust enrichment, misappropriation, fraud, gross negligence and willful misconduct against the consultant. Although the clause says that no third party can claim damages from the consultant, I think the government might not be deterred from seeking compensation for the client victim, and possibly even incarceration. Believe it or not, I’ve actually negotiated contracts where lawyers for the other side, who used a liability disclaimer just like the one appearing above, absolutely refused to concede the issue. Even after I offered up all of the above questions, and pointed the lawyers to cases where judges threw out these kinds of limitation of liability clauses, they still would not rein in this overreaching language. The most common response I received was, “We’ll let an actual judge decide whether or not my clause will be enforced!” After awhile, I realized that this intransigence presented me with an opportunity. You see, at the end of the day, if a vendor cares so much about the limitation of liability provision that they insist on an unreasonable clause like this one, it means that they use up a good deal of their bargaining power and are more likely to concede other issues. What are the other issues you might trade for in return for giving them their unenforceable language? Try the following: Mutuality. Insist that the clause must also limit your client’s liability. Indemnification. Require the vendor to indemnify your client (read all about how how to draft and negotiate indemnification clauses here, see an actual hold harmless clause here, or watch our indemnity video here for free). Payment Terms. Ask for more time to pay a bill, even press for 45 days from your client’s receipt of invoice. Termination for Convenience. Ask for the right to terminate the entire contract at any time so your client can quickly walk away from the deal. Hard Cap. Sometimes lawyers ask for additional liability limits, such as:
- One Year - Limit all claims to those that arose in the previous year before filing a lawsuit.
- Dollar Amount - Limit any liability to a small amount of money, such as $100.
- Amounts Paid - Limit liability to the amounts paid under the contract.
There isn’t any reason why you can’t concede on the overreaching language and ask for these hard cap clauses to be excised from the contract. Ultimately, when faced with an unreasonable negotiator who insists on unenforceable limitation of liability language, check with your client first and foremost and see if the client still wants to do the deal regardless of whether or not this language resides in the contract. In my experience, they almost always still want to move forward. At that point, you provide your client with the most value by seeking other areas of the contract you can improve. Hopefully, if the contract ever ends up in litigation, your client receives the benefit of these additional concessions you obtained, as well as a judge who deletes the limitation of liability clause due to its over-broad drafting. Next time someone tells you “Istanbul is Constantinople“, you can say, “Why yes, it is, but let’s talk about the names of all the suburbs!”
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