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Sharpe Edge features news, views and analysis from our team of specialist local government lawyers working at the heart of the latest legal developments. Sharpe Edge platform is also the only place where local government lawyers can get e-access to two law books by our Head of Local Government Rob Hann: The Guide to Local Authority Charging and Trading Powers (‘LACAT’) and The Guide to Local Authority Companies and Partnerships (‘LACAP’).

 

                                                                                                  

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You can’t claim that! Court finds exclusion clauses work just like any other clause

Icons CourtThe recent case of Mott MacDonald Limited v Trant Engineering Limited serves as a timely reminder that exclusion clauses in construction contracts can and do work and will be enforced by the courts to prevent what may otherwise be valid claims write Clare Mendelle and James Goldthorpe.

Mott MacDonald Limited v Trant Engineering Limited [2021] EWHC 754 (TCC)

Factual Background

Motts was engaged to provide design consultancy services to Trant, a contractor carrying out works at a military base in the Falkland Islands. Disputes rapidly developed between the parties and so they entered into a Settlement and Services Agreement (SSA) to both settle these and manage their future conduct. The SSA contained a limitation/exclusion clause which stated:

Notwithstanding any other term to the contrary in the [SSA] or any related document and whether the cause of action for any claim arises under or in connection with the [SSA] 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 [Motts] in the aggregate for all claims shall be limited to £500,000.

A further dispute then arose, in which Motts claimed that payment was outstanding under the SSA. Trant claimed that it had a counterclaim arising from Motts’ alleged “fundamental, deliberate, and wilful” breaches of the SSA.

Motts denied the allegations, but also argued that in any event the limitation clause excluded or limited its liability. Trant asserted that the clause could not exclude or restrict fundamental, deliberate, or wilful breaches.

Issues and Judgment

In determining whether such breaches fell within the scope of the exclusion clause, the judge considered that the correct approach remains as set out in Photo Production Ltd v Securicor Transport Ltd, which is that exemption clauses – including those purporting to exclude or limit liability for deliberate and repudiatory breaches – are interpreted using the normal principles of contractual construction, without the imposition of a presumption and without requiring any particular form of words to achieve the effect of excluding liability.

This means that:

  • The court is to construe the contract so as to give effect to the parties’ intention, as revealed by the language read in context.
  • In that exercise, the court will be conscious that exclusion of liability is a departure from the norm.
  • 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 will be relevant in considering the parties’ intentions. While limiting liability is less of a departure from the norm than a total exclusion of liability, there is no presumption against the exclusion of liability and no requirement for any particular form of words. This is the case regardless of the nature of the breach for which liability is being excluded.
  • As with any other contractual provision, if the language of an exclusion clauses is capable of only one meaning then effect must be given to it.

Applying this approach to the limitation clause in question, the judge found that it was “in clear terms” and “capable when read naturally of applying to the alleged breaches”. Therefore, even breaches which were fundamental, deliberate, or wilful were in scope.

It was also noted that the SSA was a bespoke agreement entered into by two commercial entities. As such, while criticisms could be made of the drafting, the imperfections did not prevent the clause from being logical or clear, and there was therefore no need to look beyond the words used on the page.

Commentary

This case serves as a sobering reminder to employers that clauses limiting, or even excluding, liability in a construction contract can work, preventing an employer from making an otherwise valid claim and leaving them seriously out of pocket. As Trant found in this instance, courts are reluctant to intervene where commercial entities have freely entered into contracts on the basis of negotiated terms. The courts will not rescue a party from a bad deal.

Clare Mendelle is a professional support lawyer and James Goldthorpe a paralegal at Sharpe Pritchard LLP


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