In many agreements, you may find a clause labeled “limitation of remedy.” This clause is largely similar to a limitation of liability clause in that it controls how much responsibility a company has under a contract. Often, however, the limitation of remedy clauses limits the types of remedies you can pursue. Remedies for contract breach include monetary damages, attorney’s fees and costs, cure first provision, binding arbitration, and injunctive relief. Let’s look at each of these in turn and discuss why you would, or would not, want to limit them.
- Monetary Damages: Without any limitation, claimed damages can quickly add up. Lost use and wages, related medical claims, and more can be piled on top of the original contract amount. Companies often limit their liability to the amount of the contract or the proceeds of the contract over a certain period of time.
- Cure First: A cure first provision requires the buyer to turn to the seller for a cure prior to attempting to mitigate damages with other vendors. A cure first provision can even go beyond providing the seller an opportunity to fix the issue, it can seek to require the buyer to work only with the seller on the cure.
- Injunctive Relief: For certain types of contracts, no monetary damage helps if the breaching party continues their problematic behavior. This is where injunctive relief comes in. Courts can stop a party from disclosing or using information protected by the contract including stopping them from selling a patented product, leveraging information for their personal gain, putting pressure on the company, and more. Contracts can limit damages or be drafted so that they specifically include injunctive relief as well as monetary damages.
- Attorney’s Fees and Costs: Contracts can specify that either both parties are responsible for their own attorney’s fees or for the losing party to pay fees for both sides. Either option can be effective at discouraging frivolous lawsuits as attorney and court costs, especially for litigation, can be expensive.
- Binding Arbitration: Often, companies elect to agree to arbitration or binding arbitration as the exclusive remedy. This is particularly common for business agreements where arbitration can handle the dispute in a timely fashion and protect corporate secrets. It is also common in international agreements where neither party wants to be subject to an uncertain jurisdiction.
Limiting the remedies a party can pursue is an important clause in any contract, especially in a major master services agreement (MSA) that will govern the parties’ interactions in many situations and over a longer period of time. It’s important for companies entering into agreements with individuals or other organizations to consider the risks of litigation and mitigate those, through contracts, business processes, and insurance, as much as possible.
The team at Virtus Law Firm has experience drafting contracts and MSAs for many industries and applications and can help build the right contract for your business. Call us at 612.888.1000 or send us an email at firstname.lastname@example.org to set up a consultation.