Can liability be excluded for deliberate breaches of contract?

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For some of our readers, excluding or limiting liability is perhaps one of the most fundamental governance requirements when contracting for works. We are frequently asked to advise on or review such clauses, whether excluding liability for certain breaches, capping overall liability or negotiating sub-caps. When combined, these provide overall protection responding to the risks under the contract.

In the case of Mott McDonald Limited (“MML”) v Trant Engineering Limited (“Trant”) [2021] EWHC 754, the High Court was required to decide whether the contractual exclusion clauses applied where the breaches were committed fundamentally, deliberately and wilfully”.

The Court decided that a party can rely on such an exclusion clause, noting that there is no requirement for a higher level of words used to give efficacy to the clause.

The “Battleground”

The Parties had entered into an Agreement under which MML provided mechanical and electrical design services to Trant in relation to the construction of a £55 million power station base on the Falkland Islands.

A dispute arose around non-payment, with MML claiming it was owed £1.6m for services provided. Trant advanced a substantial counterclaim arising out of MML’s breach of contract. MML denied it was in breach of contract but, in any event, relied on the exclusion and limitation clause in the contract.

Trant argued that MML committed those breaches “fundamentally, deliberately and wilfully” and so the cap did not apply.

The exclusion 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:

  1. the total liability of the Consultant in the aggregate for all claims shall be limited to £500,000 (five hundred thousand pounds)”

What did the High Court decide?

The Judge ruled that in order to exclude liability for deliberate or fundamental breaches, clear words were required. However, it was not necessary for the wording to specifically refer to the particular breaches relied upon. The Court noted that there is no requirement for a higher level of words used to give efficacy to the clause. The limitation clauses under this contract were in very broad terms and so were sufficient. Summary judgment was granted for MML.

Analysis

Contract drafters may take some comfort from the decision as it restates and reaffirms the Court’s established approach to interpreting and applying exclusion and limitation clauses. Specifically, there is neither a rule of law whereby clauses do not apply where the party seeking to rely on them was guilty of a deliberate or fundamental breach, nor any presumption that clauses will be interpreted narrowly so as not to apply in such cases. Of course, it was open to the parties to negotiate the scope of the limitation in order to avoid any ambiguity, for example by excluding “wilful default” from the cap on liability.

Parties should also avoid falling into the trap of assuming that just because they have agreed minimum insurance requirements, they will act as a cap on liability. Insurance requirements and exclusion/limitation clauses are entirely separate considerations.

Do you know what your maximum exposure is under your contracts? Please contact either Samantha Greer or James Coppinger to find out.

LINK TO JUDGMENT: https://www.bailii.org/ew/cases/EWHC/TCC/2021/754.html