Limitation of liability and indemnity clauses are often left until the end of a negotiation and accepted as “standard boilerplate”. Yet when something goes wrong, they are usually the clauses that decide how much money changes hands, and who bears the loss.
A supplier who agrees to an uncapped indemnity may be taking on a risk worth many times the value of the contract. A customer who accepts a broad exclusion of “consequential loss” may find that the loss it actually suffered cannot be recovered at all.
This article explains how these clauses work in South African law, where their limits lie, and what to look for before you sign.
Three different tools
These clauses are often grouped together, but they do different jobs:
- Exclusion (exemption) clauses remove liability for certain types of loss or conduct altogether, for example “the supplier is not liable for any loss of profit”.
- Limitation (cap) clauses accept liability but cap the amount, often by reference to the fees paid over a period or a fixed rand amount.
- Indemnities shift risk the other way. One party undertakes to hold the other harmless against specified losses, often including claims by third parties, such as intellectual property infringement or injury claims.
A well-drafted contract uses all three together, so that each party knows what it is responsible for and up to what amount.
The starting point: freedom of contract
South African courts generally enforce exclusion and limitation clauses that are agreed between commercial parties. The Supreme Court of Appeal confirmed in Afrox Healthcare Ltd v Strydom (2002) that a clause excluding a hospital’s liability for its staff’s negligence was not, on its own, contrary to public policy. The Constitutional Court has since confirmed, including in Beadica 231 CC v Trustees, Oregon Trust (2020), that courts will not refuse to enforce a contractual term simply because it seems unfair. Fairness considerations are relevant to public policy, but a term must be shown to be contrary to public policy before a court will refuse to enforce it.
That means you will usually be held to what you signed, even if you did not read it.
How courts interpret these clauses
Because exclusion clauses take away rights the law would otherwise give, courts interpret them strictly:
- Ambiguity counts against the party relying on the clause. If the wording can reasonably be read in two ways, the narrower reading is likely to be preferred.
- Negligence must be covered clearly. A clause that does not clearly extend to negligent conduct may be read as not excluding liability for negligence.
- Context matters. Clauses are read in light of the contract as a whole, its purpose and the circumstances in which it was concluded.
- “Consequential loss” is not a fixed term. South African courts distinguish between damages that flow naturally from a breach (general damages) and those that depend on special circumstances (special or consequential damages). Whether a specific loss, such as lost profit, falls inside an exclusion depends on the wording. If you mean to exclude lost profits, lost revenue or data loss, say so expressly.
Where the law draws the line
There are limits to what a clause can achieve:
- Fraud and intentional wrongdoing. A party cannot contract out of liability for its own fraud. Clauses that purport to exclude liability for deliberate misconduct are vulnerable on public policy grounds.
- Consumer contracts. The Consumer Protection Act 68 of 2008 (CPA) prohibits terms that limit or exempt a supplier from liability for loss caused by its gross negligence or that of its agents or employees (section 51). It also requires that terms limiting risk or liability be drawn to the consumer’s attention in plain language, in a conspicuous manner and before the consumer agrees (section 49), and allows a court to strike out unfair, unreasonable or unjust terms (sections 48 and 52). The CPA regulations also list terms presumed to be unfair.
- Statutory duties. Some liability arises under legislation and cannot simply be excluded by contract.
The CPA does not protect every business. It generally excludes juristic persons above the threshold turnover or asset value set by the Minister. But many small business customers are still protected, so suppliers who sell to small businesses should not assume their standard limitation clause will survive.
Indemnities: wider than they look
An indemnity can expose a party to losses that would never have been recoverable as ordinary damages for breach of contract. Points to check include:
- Scope. Does the indemnity cover only third-party claims, or also the other party’s own losses?
- Fault. Does it apply only where the indemnifying party was at fault, or regardless of fault?
- Interaction with the cap. Is the indemnity subject to the overall liability cap, or “carved out” and therefore unlimited?
- Procedure. Must the indemnified party give prompt notice, allow the indemnifier to control the defence and avoid settling without consent?
- Insurance. Is the indemnity backed by insurance, and does your policy actually respond to contractually assumed liability?
A practical checklist before you sign
- Identify every clause that excludes, limits or shifts liability, including those hidden in definitions, service schedules and standard terms incorporated by reference.
- Check whether the cap is realistic compared with the contract value and the losses that could actually occur.
- List the carve-outs from the cap, such as fraud, wilful misconduct, confidentiality breaches, data protection breaches and IP indemnities, and decide whether each is acceptable.
- Check whether lost profits, revenue, data and wasted expenditure are excluded, and whether that suits your position as supplier or customer.
- Confirm whether the CPA applies and, if so, that liability limitations are drawn to the customer’s attention and do not exclude gross negligence.
- Align indemnities and caps with your insurance cover, and speak to your broker.
- Make sure the same approach is used consistently across your master agreement, order forms and online terms.
How O’Reilly Law can help
We draft and negotiate commercial contracts for suppliers and customers, including master services agreements, supply and distribution agreements, SaaS terms and standard terms of trade. We review existing templates to check that liability and indemnity provisions are enforceable and reflect your actual risk, and we advise on disputes where these clauses are in issue.
Contact us to review your contract before you sign.
Related reading: Claiming damages for breach of contract: what you can recover · Essential agreements every business owner needs
This article is general information and not legal advice. Correct as at October 2026.