Contract Breach: The limits of Exclusion and Limitation Clauses
Businesses need to think carefully when attempting to rely on limitation clauses to limit their liability to another contractual party.
In a recent case, the claimant engineering company sought summary judgment in a case involving a debt owed in respect of a settlement and services agreement. The contract governed the provision of design services for a £55m power station at RAF Mount Pleasant.
The defendant (an engineering contractor) counterclaimed, argued that the claimant had committed a number of breaches fundamentally, deliberately or wilfully. This was denied this and the claimant countered that even if it had, the contract included clauses limiting and restricting its liability. At issue was whether the defendant’s counterclaim was limited by the clauses.
Clear language
The crucial point was that the clauses were set out in clear language capable of covering breaches such as those alleged by the defendant. Furthermore, the clauses were within a bespoke agreement intended to comprehensively regulate the parties' future dealings.
The judge rejected the defendant's argument that there was a strong presumption against an exclusion clause operating to preclude liability for a deliberate repudiatory breach of contract, and that the presumption could only be rebutted by strong language.
This, said the court, would amount to the implication of exceptions to the clear terms of those clauses. There was no basis for such a construction which would have the effect of restricting their clear scope. When properly construed, the clauses in question applied to any contractual breach by the claimant, including those which were fundamental, deliberate or wilful.
The court granted summary judgment on the construction question in the claimant's favour, paving the way for it to recover the debt as claimed.
What does this mean?
The ruling affirms the consistent approach of the courts to contractual interpretation. The defendant argued that was a case where context was important – that the court should adopt a construction which would not follow from consideration of the language used standing in isolation.
However, the correct approach, said the judge – on the basis of case law – is that that exemption clauses, including those purporting to exclude or limit liability for deliberate and repudiatory breaches, are to be construed by reference to normal principles of contractual construction. That should be without the imposition of a presumption and without requiring any particular form of words or level of language to achieve the effect of excluding liability.
One final point: the court said that if the defendant really thought the claimant’s actions had been fundamentally, wilfully or deliberately in breach – it could have accepted its repudiation such as to terminate the contract. But it didn’t do so, even though it would have freed it from having to perform obligations falling due for performance post-termination.
Businesses are cautioned to take specialist advice should disputes arise around breaches and the potential implications of limitation and exclusion clauses.
1Mott MacDonald Ltd v Trant Engineering Ltd [2021] EWHC 754 (TCC)
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