This website uses essential cookies without which it will not work, along with other harmless cookies aimed at improving your use of our website.

Please see our Web Policy and our Privacy Policy to find out more about the cookies we use and how they can be deleted.

knowledge header image

legal alert: Interpreting poorly drafted limitation of liability clauses

07 Feb 2018

In Royal Devon and Exeter NHS Foundation Trust v Atos IT UK Services Limited [2017] EWHC 2197 (TCC), the court held that a poorly drafted limitation of liability clause was valid and enforceable and where the parties offer competing interpretations, the one which most closely aligns with commercial sense will be favoured.

Facts

The Trust entered into an agreement (c£5million) with Atos for them to provide an IT system.  The Trust was not satisfied with the performance of the system and therefore served a notice on Atos, which resulted in termination of the agreement. The Trust subsequently issued proceedings against Atos alleging breach of contract.

Atos sought to rely on the following limitation of liability clause:

“9.1 The aggregate liability of the Contractor in accordance with sub-clause 8.1.2 paragraph (a) shall not exceed the sum of two million pounds.
9.2 The aggregate liability of the Contractor in accordance with sub-clause 8.1.2 paragraph (b) shall not exceed:
 9.2.1 for any claim arising in the first 12 months of the term of the Contract, the Total Contract Price as set out in section 1.1; or
 9.2.2 for claims arising after the first 12 months of the Contract, the Total Contract Charges paid in the 12 months prior to the date of that claim.”

The Claimant’s position

The Trust argued that the meaning a reasonable person should attach to the clause was unclear and therefore, the cap on liability should be declared unenforceable.

The Defendant’s position

Atos acknowledged that the clause was poorly drafted but argued that this did not impede interpretation of the clause. Atos suggested that the words “claims arising” should be replaced with the words “any claim arising” and the cap was not cumulative so only one cap was to be determined by the timing of the first default. Alternatively, it argued that there were two caps; one applying to defaults occurring in the first 12 months of the contract and calculated by reference to the total contract price and the second which applied to defaults occurring after the first 12 months which would be calculated by reference to the total contract charges paid in the 12 months prior to the claim.

TCC’s decision

The TCC’s decision built upon previous case law dealing with contractual interpretation including Arnold v Britton [2015] UKSC 36 and Wood v Capita Insurance Services Ltd [2017] UKSC 24.

The court reaffirmed its role is to ascertain the parties’ intention by reference to what a reasonable person would have understood them to be, taking into account the background knowledge available to the parties and the language of the contract.  Contractual interpretation should focus on the meaning of the words in their documentary, factual and commercial context, considering factors such as the natural and ordinary meaning of the clause, the purpose of the clause and contract and commercial common sense. However, any subjective evidence of the parties’ intentions should be disregarded.

The TCC accepted Atos’ view and held that the words “aggregate liability…shall not exceed” were indicative of the parties’ intention that there was only to be one cap on liability. The court suggested that if construed otherwise, Atos could end up incurring liability for a sum far in excess of the total value of the agreement.

This decision demonstrates the court’s preference to enforce unclear contractual provisions rather than declaring them void for uncertainty.

 

Contacts


Bal Manak | Associate

Email:
bal.manak@watsonburton.com
Tel:
0345 901 0929