Contractual interpretation: High Court reaffirms approach to exclusion and limitation clauses
Mott Macdonald Ltd v Trant Engineering Ltd: High Court reaffirms approach to exclusion clauses and limitations on liability
Exclusion clauses and limitations on liability are a familiar part of most commercial contracts. The recent decision in Mott Macdonald Ltd v Trant Engineering Ltd  EWHC 754 (TCC) has reaffirmed the court's approach that exclusion clauses and limitations on liability apply even in the case of party's fundamental, wilful or deliberate breach of contract.
Mott MacDonald Limited (Mott) and Trant Engineering Limited (Trant) entered into a design services agreement (the Agreement), in relation to a contract to upgrade facilities at RAF Mount Pleasant in the Falkland Islands. Mott had already provided engineering design consultancy services at the tender stage of this project but after the main contract was secured disputes arose between the parties as to how Mott's designs were to be used going forward and what they had actually agreed to provide. The Agreement was intended to resolve these matters so that a schedule of work by Mott would be delivered and fully integrated into the project.
The work went forward, but a dispute arose over payment, with Mott claiming c. £1.6 million under the Agreement. When Trant refused to pay, Mott revoked Trant's passwords to the Building Information Modelling database and hence their access to any of the designs. Trant counterclaimed for c. £5 million for the cost of having to redo most of the design work.
The Agreement contained a standard form exclusion clause, as below:
"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:
a. the total liability of the Consultant in the aggregate for all claims shall be limited to £500,000 (Five hundred thousand Pounds)…"
Mott denied breach of the Agreement, but in any case made an application for summary judgment that the exclusion clause applied, and limited its liability to £500,000 regardless of whether there was deliberate or wilful breach of contract. Trant argued that the exclusion and limitation provisions did not operate to restrict or exclude Mott’s liability for fundamental, deliberate, or wilful breaches (as alleged here), unless there was clear wording to the contrary and in this case the relevant provisions did not specifically mention deliberate breach.
The judge sided with Mott, granting summary judgment in its favour.
In a detailed and considered judgment, Judge Eyre QC assessed the parties' respective arguments and the various authorities in several stages:
- the general principles of contractual construction;
- the approach to construction when dealing with exemption clauses; and
- the application of the above to the provisions in question.
As to the first of these stages, Judge Eyre QC cited the Court of Appeal's decision in Lamesa Investments Ltd v Cynergy Bank Ltd  EWCA Civ 821 as a useful summary of the well established principles set out in the Supreme Court's decision of Wood v Capita Insurance Services Ltd  UKSC 24,  AC 1173, which in turn had explained the approach set out in Rainy Sky v Kookmin Bank  UKSC 50,  1 WLR 2900 and Arnold v Britton  UKSC 36,  AC 1619.
Judge Eyre QC then reviewed the authorities on the construction of limitation and exclusion clauses. Unlike in relation to the first stage, there was significant disagreement between the parties as to the approach to be adopted. Trant placed significant reliance on a decision of a deputy judge in Internet Broadcasting Corp Ltd v MAR LLC  EWHC 844 (Ch) (the MARHedge) to support its contention 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 (which it contended was not present here). Trant also sought to rely in support of this contention on various passages of the decision of the House of Lords in Suisse Atlantique Société d'Armement Maritime SA v Rotterdamsche Kolen Centrale NV  1 AC 361.
Judge Eyre QC was not persuaded by these arguments, holding that the MARHedge was wrongly decided on this point. Instead, Judge Eyre QC held that the House of Lords decision in Suisse Atlantique was to be read and applied as set out in Photo Production Ltd v Securicor Transport Ltd  AC 827 and that this constituted a clear rejection of the doctrine of fundamental breach. The court held that exclusion clauses are to be considered in the same manner as any other contract clauses and should be given their clear intended meaning unless that meaning is ambiguous or reduces the obligations of the parties "to the level of a mere declaration of intent". Judge Eyre QC was categorical that:
"As with any other contractual provision 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."
Applying these principles to the Agreement, the court held that the relevant exclusion clause established a sufficiently clear regime to govern Mott's liability. Whilst clear words were required in order for parties to exclude liability for fundamental, wilful or deliberate breach, the corollary of this was not that an exclusion or limitation regime had to expressly refer to such breaches. In this case, the exclusion clause was very broad in its terms and scope and was to be applied.
Moreover, in dealing with Trant's contention that it was premature to reach judgment on this matter summarily - on the basis that the full nature and/or effect of any breaches could only be known after the parties' evidence had been assessed at trial - Judge Eyre QC was clear that the context in which the Agreement was to be interpreted was that which existed at the time the Agreement was made and not subsequently.
As a result, the court held that while Trant's claim could go forward to trial on the facts of the breach, the ultimate liability of Mott to any such claim was limited to £500,000 under the Agreement.
Contracts are intended to provide parties with certainty: certainty as to obligations; certainty as to what they have agreed to pay; and importantly, certainty about what will happen if things go wrong. In commercial contracts, the courts have been clear that the parties are sophisticated actors with expert advice available, and contracts say what they mean to say.
This means that the wording is taken to reflect the intentions of the parties, however unfair or foolish that might seem: "it is not the function of a court when interpreting an agreement to relieve a party from a bad bargain" (Sir Geoffrey Vos, in Lamesa Investments Ltd v Cynergy Bank).
While the court does have some latitude to interpret clauses in contracts according to commercial sense and the context in which the contract was made, that is limited to where the wording is ambiguous or there are viable competing interpretations. The court's decision in Mott Macdonald Ltd v Trant Engineering Ltd affirms that where the parties have used unambiguous language, the courts will apply it, including the application of exclusion clauses.
The decision is a clear reminder to parties to take care when drafting and agreeing to exclusions of or limitations on liability. In this instance, Mott's liability was held to be limited to £500,000 despite the losses Trant claimed flowed from Mott's alleged breach being ten times that sum. Clearly, when negotiating such provisions, care is needed to either seek to ensure as far as possible that any agreed liability cap is aligned with any likely losses a party may suffer as a result of a significant breach of contract or that the exclusion clause is narrower in scope.
The decision will come as a comfort to parties and lawyers that so long as the exclusion and limitation clauses are clear in scope and application then they will bite. The clauses do not need to specifically rebut a presumption that they will not apply in the case of a fundamental, wilful or deliberate breach. Such clauses are a commercial way of allocating risk between the parties in advance of performance: they need to be carefully considered and negotiated as a party will be held to its bargain.
The decision also demonstrates the merits of utilising the various procedural weapons in a litigant's armoury. When used correctly, a summary judgment application can be a powerful and highly effective tool in limiting issues in dispute, shifting the dynamics in proceedings and placing significant legal and commercial pressure on an opponent to settle or even abandon a claim at an early stage.