The scope of limitation and exclusion clauses under scrutiny from the TCC

Posted: 16/04/2021

The Technology and Construction Court (TCC) has recently published a judgment that focused on whether ‘fundamental, deliberate and wilful’ breaches fall within the scope of clauses limiting and excluding liability. Such clauses are a commonplace feature of commercial contracts, and the judgment is likely to be welcomed by those wishing to rely on such clauses.

The case

The claim in Mott Macdonald Ltd v Trant Engineering Ltd [2021] EWHC 754 (TCC) relates to the upgrading of facilities at the military base at RAF Mount Pleasant in the Falkland Islands. Trant was engaged by the Defence Infrastructure Organisation (an operating arm of the Ministry of Defence), to construct a new power station at RAF Mount Pleasant. Trant had engaged Mott Macdonald to provide initial design consultancy services.

The parties were soon in dispute and subsequently entered into a Settlement and Services Agreement (SSA) with a view to resolving the dispute and governing the parties’ future actions. Most relevant for the purposes of this judgment, the SSA contained the following limitation clause: “Notwithstanding any other term to the contrary in the Agreement or any related document and whether the cause of action for any claim arises under or in connection with the Agreement in contract or in tort, in negligence or for breach of statutory duty or otherwise. in relation to any and all causes of action as aforesaid… the total liability of the Consultant in the aggregate for all claims shall be limited to £500,000 (five hundred thousand pounds)”.

This limitation clause (otherwise known as the liability cap) proved to be the principal battleground between the parties. Nonetheless, the application also concerned the scope of an exclusion clause and a net contribution clause.

Sometime after the parties entered into the SSA, Mott Macdonald commenced proceedings against Trant claiming c£1.8 million for payment allegedly outstanding under the SSA. In response, Trant contended that it had a counterclaim for c£5 million in respect of Mott Macdonald’s breaches of the SSA. Significantly, Trant alleged that Mott Macdonald’s breaches were committed ‘fundamentally, deliberately, and wilfully’.

Mott Macdonald denied breaching the SSA and in particular that it did so fundamentally, deliberately, or wilfully. It contended that in any event, Trant’s counterclaim was subject to the restrictions and exclusions contained in the SSA – notably the liability cap. Trant asserted that the restrictions and exclusions did not operate to restrict or exclude Mott Macdonald’s liability for breaches committed fundamentally, deliberately, or wilfully.

The judgment

The TCC considered the relevant authorities in two stages:

• the construction of contracts in general; and
• the approach to the construction of exemption clauses.

As regards the construction of contracts in general, the TCC reiterated the principles found in the Supreme Court decision of Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] AC 1173 which explained the approach taken in Rainy Sky v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900 and Arnold v Britton [2015] UKSC 36, [2015] AC 1619.

Unsurprisingly, there was little dispute between the parties with respect to the applicability of the law in this regard. However, as regards the approach to be taken to the construction of terms excluding or restricting liability, the parties advanced competing arguments. Mott Macdonald contended that these terms are to be construed ‘following the principles applicable to contracts generally’. Trant, however, argued that for a contractual term to be effective to exclude or restrict liability for a deliberate breach, then the use of express language to that effect was necessary.

Trant relied heavily on the case of Suisse Atlantique Societe d’Armement Maritime SA v N V Rotterdamsche Kolen Centrale [1967] 1 AC 63 in support of its position. However, while this remains good law, the TCC emphasised that it is to be read and applied as it was later interpreted in the case of Photo Production Ltd v Securicor Transport Ltd [1980] AC 827. This meant that exemption clauses including those purporting to exclude or limit liability for deliberate and repudiatory breaches are to be construed by reference to the normal principles of contractual construction 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.

The TCC provided the following guidance as to what this meant in practice:  

• the court is to construe the contract so as to give effect to the parties’ intention as disclosed by the language read in context;
• in that exercise the court is to be conscious that the exclusion of a liability that would otherwise and ordinarily arise is to that extent a departure from ‘the norm’;
• in light of this, in the absence of clear words the court is unlikely to conclude that a clause should properly be construed as excluding liability;
• the nature of the term under consideration will be relevant – hence a limitation of liability provision can be construed as the parties agreeing an allocation, and less of a departure from ‘the norm’;
• there is no presumption against the exclusion of liability and no requirement for any particular form of words or level of language – regardless of the nature of the breach; and
• if the language of an exclusion clause is such that it is properly capable of only one meaning then effect must be given to it.

In light of the above, the TCC found that when properly construed, the provisions in question were applicable to any breach by Mott Macdonald, so including breaches that were fundamental, deliberate, or wilful.

Interestingly, Trant had sought to advance an argument that the relevant provisions were so poorly drafted that the TCC should regard them as lacking clarity, with the consequence that the court should turn from the language used to the factual context, or at least be wary of simply looking to the words used (reliance placed on Wood v Capita). In Wood v Capita the court drew a distinction between comprehensive documents that are the fruit of careful drafting with professional input, and those marked by informality and brevity and prepared without professional input. The TCC said this did not mean it should conduct a minute textual analysis and if imperfections are found, shift its focus away from the language used to the factual context.

A reluctance to interfere

The judgment continues the recent trend of unwillingness by the English courts to interfere with limitation and exclusion clauses in business to business contracts. It emphasises that in circumstances where commercial entities have willingly and freely entered into contracts and agreed specific terms, the court will not be utilised to protect a party from the consequences of a bad bargain.

Similarly, the court will not step in and pick apart contractual terms simply because the agreement is poorly drafted. It still remains a contract negotiated by commercial entities, in many circumstances with the assistance of professional input. 

Ultimately, should parties wish to carve out specific breaches from exclusion or limitation clauses, they would be well advised to do so in the clearest of terms.  

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