Introduction

In technology licence agreements and similar contracts, it is common to set a financial cap on liability to provide predictability and limit the licensor’s exposure to damages. However, when multiple claims arise under such an agreement, parties often seek clarity on how these claims interact with the overall liability cap. This practice note outlines the standard approach, supported by industry guidelines, and highlights important exceptions and practical considerations.

How Liability Caps Work for Multiple Claims

The analysis below describes common contractual structures rather than a rule that applies to every agreement. Relevant wording may distinguish between an aggregate cap, a per-claim cap, annual or rolling caps, and separate caps for specified liabilities. The agreement should therefore be read as a whole and in light of the governing law.

Aggregate Cap Principle

• Where an agreement states that the liability cap applies in the aggregate, all claims within the scope of that cap are counted together.
• Amounts for which liability is established reduce the remaining amount available under the cap.
• Once the aggregate cap is exhausted, no further amounts are payable for claims subject to it.
• Carve-outs or separate caps may apply, including for intellectual property infringement.

Deduction Method

• Amounts payable in respect of claims subject to the cap are applied against the aggregate limit.
• Example: If the cap is $1 million and $400,000 becomes payable for the first claim, $600,000 remains available for later claims within the same cap.
• Further amounts payable continue to reduce the remaining limit until it is exhausted.

No Reset

• An aggregate cap ordinarily does not reset for each claim.
• Whether it applies for the full term, resets annually, or operates on another basis depends on the period and structure stated in the agreement.

Exceptions and Carve-Outs

• Intellectual property infringement or wilful misconduct: may be excluded from the general cap, left uncapped, or made subject to a separate cap.
• Performance guarantees, re-engineering costs, liquidated damages, and other agreed remedies: may fall within the general cap, a separate cap, or an exclusive-remedy regime, depending on the agreement’s wording.

Summary Table

Conclusion

Where an agreement contains an aggregate liability cap, amounts payable for claims within its scope reduce the remaining cap until it is exhausted; the cap does not reset for each claim unless the agreement provides otherwise. The analysis should also identify the applicable cap period, any per-claim or separate caps, excluded liabilities, and the effect of the governing law.

Disclaimer: This practice note is for informational purposes only and does not constitute legal advice. Readers should consult qualified professionals for advice tailored to their specific circumstances.