Important new guidance on interpreting exclusion and limitation clauses26 April 2021

The facts

Trant Engineering Limited was engaged to construct a new power station at RAF Mount Pleasant and contracted with Mott MacDonald Limited to provide design services. Following initial disputes between the parties, a settlement and services agreement (“SSA”) was entered into which covered the parties’ future actions. The SSA contained three clauses which limited or excluded Mott MacDonald’s liability in the event of a breach: (i) a liability cap, (ii) an exclusions clause, and (iii) a net contribution clause. When Trant failed to pay Mott MacDonald under the SSA, Mott MacDonald issued proceedings against Trant. In defence Trant pleaded that Mott MacDonald had fundamentally, wilfully and deliberately breached the SSA. Mott MacDonald sought summary judgment, contending that even if the alleged breaches were deliberate, the exclusion and restriction clauses applied.

Issues

The key issue before the court was how the exclusion clause in the SSA ought to be interpreted. Although the House of Lords in Photo Production² rejected the doctrine that an exclusion clause will not apply where the party relying on it has been guilty of a fundamental breach, uncertainty remained following that decision. In particular, it was unclear whether it was still presumed that a clause excluding liability for a deliberate, repudiatory breach of contract could only be rebutted where clear language had been used. Notably, two decisions of the High Court reached different conclusions – in Marhedge it was held there was such a presumption³, whereas in AstraZeneca it was held there was not⁴.

Judgment

The court said that where two High Court judgments interpret the law differently, the later decision supersedes the earlier case. The judge was satisfied that the analysis in AstraZeneca was correct – exemption clauses should be interpreted by the normal principles of contractual construction without any presumption that could only be rebutted by the use of clear language. This principle applies regardless of the breach being limited or excluded and regardless of whether it is deliberate or repudiatory.

In this case the liability cap, exclusion clause and net contribution clause were all drafted without carve outs for fundamental, wilful or deliberate breaches. They were drafted in clear terms and were contained in an agreement designed to resolve an existing dispute and to set out a regime governing their further dealings to avoid a renewed dispute.

Although Trant alleged it would have “to redo virtually the entire scope of work under the SSA” because of Mott MacDonald’s fundamental, deliberate and wilful breaches of the SSA, the court upheld the drafting of the SSA. In doing so, they were unwilling to relieve Trant from a bad bargain and so summary judgment was entered against them.