Limiting liability in contracts: lessons from the Amazon AWS outage

What do Bank of Scotland, Clash Royal, Snapchat, EE, Fortnite and UK Government Gateway Services have in common?

They all rely on Amazon Web Services (AWS) for hosting services and making their products available to customers. When AWS recently ran into issues and stopped working properly, each of them faced disruptions.

With so many corporate eggs in the Amazon basket, it’s easy to see how disruptions have been so far reaching. People couldn’t pay bills, board flights, or pay taxes, and advertisers couldn’t reach users with their material on social media platforms. Individuals were inconvenienced and lost money, while companies are expected to suffer losses as they try to smooth things over with customers and get back to normal.

Who can make a claim for compensation, and against whom?

The answer depends on what the contracts between the various players say. Most companies who use AWS will not be in a position to negotiate with such a corporate giant and will have signed up to its standard terms.

What Amazon’s terms say about liability

Amazon’s customer agreement entirely excludes liability in several key areas. Users cannot make a claim if losses were for indirect or consequential damage, the value of content, lost profits, revenues, customers, opportunities, or (crucially here) unavailability of the services. If (and it’s a big IF) losses don’t fall into any of those categories, damages are capped at the charges paid to AWS in the 12 months prior to the liability arising.

Users may also claim service credits for any period where the services were not available, equal to the fees paid for that period.

So, more than likely, users who make a claim will get some money back for the period of outage disruption. However, this amount will almost certainly fall well short of actual losses — whether measured in management time, compensating customers or patching up damage to their reputation as a reliable provider. Users are perhaps more likely to look to their insurance policies for a more useful outcome.

Why limiting liability matters for every business

The AWS terms may seem harsh, but smart companies do make sure they have terms in place to protect themselves when things go wrong, and — mostly — the law allows them to do so. How far you can go with this depends on bargaining power, available alternatives, etc. Clearly, Amazon has more clout in a negotiation than most businesses.

However, when you are a provider of goods or services, limiting your liability effectively is one of the most important ways to protect your business from claims when things go wrong. Developing your own standard contracts and terms is a good way to do this — if you have a great contract that is tailored to exactly what you’re doing, it can make it easier to persuade a customer that you will trade on your own terms rather than theirs.

How Napthens can help

At Napthens, we can work with you to put in place terms of business that truly fit your organisation. Depending on your needs, this may be a one-off set of standard terms and conditions which you attach to order acknowledgments.  Alternatively, it might be a suite of documents that form your standard across the services you offer, and which you negotiate with customers.

We can help you negotiate contracts and advise when customers or their lawyers request changes. If you need to work with customer terms, we can review them and advise what’s standard — and what isn’t.

Please do get in touch or visit our commercial law service page for more details.