Limitations and exclusions of liability in business to business contracts in Singapore

Singapore law generally allows parties in commercial contracts to limit or exclude liability, subject to statutory controls under the Unfair Contract Terms Act (Cap. 396) (“UCTA”) and ordinary principles of contractual interpretation.

Yes. Several provisions of the UCTA render certain exclusions void or subject to the requirement of reasonableness:

• Death or personal injury resulting from negligence: liability cannot be excluded or restricted at all (section 2(1) UCTA).
• Standard terms or consumer contracts: a party cannot, on its written standard terms or when dealing with a consumer, exclude or restrict liability for breach, or render substantially different or no performance, unless reasonable (section 3 UCTA). This does not apply to international supply contracts (where parties' places of business are in different states and goods are carried from one state to another) pursuant to section 26 UCTA.
• Implied terms as to title (sale / hire-purchase): liability cannot be excluded at all (section 6 UCTA).
• Fraud: a party cannot rely on an exclusion clause to avoid liability for its own fraud as a matter of common law.

Parties may validly exclude liability for consequential, indirect, or special losses subject to the requirement of reasonableness, and such clauses are commonly encountered in commercial contracts. Typically, "consequential loss" in an exclusion clause is to be construed by the courts as referring to damages recoverable for loss arising from the special circumstances known to the parties at the time of contracting.

If the exclusion clause does not satisfy the reasonableness requirement under the UCTA, it may be struck down. 

It is permissible for parties to exclude liability for loss of profit, revenue, and similar heads of loss. However:

• Where a head of loss (e.g. “loss of profit”) is excluded as a standalone category, the loss, whether direct or indirect, may be excluded.
• Where such items are listed as examples of “consequential” or “indirect” loss, they are typically excluded only to the extent they arise from special circumstances known to the parties at the time of contracting.

Such exclusions are also subject to the reasonableness test under the UCTA.

Financial caps on liability are commonly used in commercial contracts and are more often upheld compared to exclusion clauses. The courts generally treat limitation of liability clauses less stringently than total exclusion clauses. 

Where UCTA applies, financial caps must satisfy the reasonableness test. In assessing reasonableness, the court will consider factors such as (a) the resources available to the party to meet the liability; and (b) whether it was reasonable for that party to obtain insurance (section 11(4) UCTA). 

Exclusive remedy clauses are enforceable under Singapore law, subject to the UCTA and ordinary principles of construction. 

Under section 13(1) UCTA, clauses which exclude or restrict any right or remedy in respect of a liability or subject a person to any prejudice for pursuing such right or remedy are treated in substance as limitation or exclusion clauses.

A court might refuse to treat an exclusive remedy as exhaustive where:

• the clause does not satisfy the requirement of reasonableness under the UCTA (where applicable);
• the clause is found, on its proper construction, not to cover the events that have actually occurred; or
• one party has given a collateral warranty that runs counter to the exclusive remedy clause; in which case, the warranty takes precedence. 

Yes. Singapore courts may sever unenforceable parts of a clause and uphold the remainder, provided certain conditions are met.

The blue pencil test has been accepted in the Singapore Court of Appeal and empowers the court to remove offending words in a clause if it does not alter the meaning of the clause or render it senseless; however, the court will not rewrite the contract for the parties. 

Parties may generally agree to shorten the time period within which claims must be brought. Such provisions are typically enforceable in Singapore. However, such clauses may be subject to the UCTA reasonableness test where they operate, in substance, to restrict a party’s right to bring a claim.

As regards extension, case law has found that parties may agree not to rely on limitation defences (for example, through contractual arrangements or estoppel), thereby allowing claims to proceed beyond the statutory limitation period.

Several public policy considerations can override contractual limitation or exclusion of liability clauses:

• Ouster of court jurisdiction: A clause that totally excludes the court's ability to adjudicate a matter (as distinct from limiting remedies) would be contrary to public policy.
• Contracts to commit a crime, tort, or fraud: Contracts entered into with the object of committing an illegal act are void and unenforceable at common law.
• Reasonableness: As made apparent by the UCTA, the reasonableness test ensures that clauses which unfairly exclude or restrict liability can be struck down even between commercial parties contracting on standard terms.   

Where a contract is governed by Singapore law, limitation and exclusion clauses will generally be assessed under Singapore law, including UCTA, regardless of where performance takes place.

However, the UCTA contains an important carve-out for international supply contracts. Under section 26 of UCTA, the reasonableness requirements under sections 3 and 4 (i.e. exclusion of liability arising in contract on the standard terms of one party; and unreasonable indemnity clauses) do not apply to international supply contracts. International supply contracts are defined as contracts made by parties whose places of business are in different states, where goods are carried from the territory of one state to another. 

Where a contract is governed by a foreign law, the enforceability of limitation and exclusion clauses will generally be determined under that law even if performance occurs in Singapore.

Under the Foreign Limitation Periods Act 2012, foreign limitation rules will also apply where foreign law governs the relevant issue.

However, Singapore courts may decline to apply foreign law to the extent that it would be contrary to Singapore public policy, including where its application would result in undue hardship (section 4 of the Foreign Limitation Periods Act 2012).