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Limitation clauses

Published on 25 September 2017

Unclear limitation clauses – Royal Devon and Exeter NHS Foundation Trust v ATOS IT Services UK Ltd [2017] EWHC 2197 (TCC)

The question
Will an ambiguous limitation of liability clause be valid and enforceable?

The facts

Royal Devon and Exeter NHS Foundation Trust (the Trust) entered into a contract for the provision of a computer system by ATOS IT Services UK Ltd (Atos).  However, the Trust claimed that there were defects in the system provided, and that Atos had failed to remedy them, and proceeded to terminate the contract.  The Trust claimed damages and argued that the limitation of liability provisions were unenforceable as they were ambiguous and uncertain.

Atos' aggregate liability was stated not to exceed: “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 Trust argued that this made it unclear whether there was a single limitation cap or a separate cap for each claim.  Atos argued the reference to “claims” should be read as “claim.

The decision

The Court rejected the Trust's argument that the provision was incapable of being construed and therefore unenforceable.  The Court applied usual contractual interpretation principles (Arnold v Britton, Rainy Sky and Wood v Capita).  The Court must ascertain the objective intentions of the parties by reference to what a reasonable person, having the background knowledge, would have understood the agreement to mean in the relevant factual and commercial context. 

There were two competing interpretations and so it was open to the Court to prefer the option that made commercial sense, this case that the parties had intended an aggregate cap on liability. 

The Court also noted it will try and give effect to terms agreed by parties where possible, and will be reluctant to decide a contractual provision is void for uncertainty (Whitecap Leisure v Rundle [2008] EWCA Civ 429). 

Why is this important?

This decision again highlights the importance of precise drafting, particularly limitation clauses.  It is also a good example of contractual interpretation where the Court prefers the interpretation that makes commercial sense (ie a Rainy Sky approach).

Any practical tips?

Be careful with your drafting!  Take particular care with layered limitation clauses.  Continue to bear in mind that recitals and acknowledgements within an agreement may assist the Court with identifying the commercial context.