Standard exclusion clauses and liability caps interpreted without presumption even for fundamental or deliberate breach

Mott Macdonald Ltd v Trant Engineering Ltd [2021] EWHC 754 (TCC)

The question

Do special rules of interpretation apply to clauses excluding or limiting liability where there has been a deliberate and repudiatory breach of contract? 

The key takeaway

The correct approach to determining a clause seeking to exclude liability is “simply one of construing the clause, albeit strictly, but without any presumption”. If an exclusion clause is sufficiently clear, it will apply to deliberate or fundamental breaches even if that appears unfair or unreasonable. If the parties intended to exclude “fundamental, deliberate and wilful” breaches of contract, clear contractual wording was required.

The background

Trant Engineering Limited (Trant) engaged Mott MacDonald (Mott) to provide engineering consultancy design services to Trant for works to upgrade an RAF military base in the Falklands for the Ministry of Defence (MoD).

A dispute then arose regarding the scope and value of work to be provided by Mott and, in 2017, the parties entered into a Settlement and Services Agreement (SSA) to resolve the dispute and govern the services to be provided by Mott. As well as terminating the proceedings by way of a consent order, the SSA contained three clauses which limited Mott’s liability in the event of a breach: (i) a liability cap limiting Mott’s liability to £500,000; (ii) an exclusion clause; and (iii) a net contribution clause.

Another dispute arose when Mott revoked the passwords given to Trant to access the modelling database, preventing Trant from accessing the design data. Trant then failed to make certain payments and Mott issued proceedings for payments due of c. £1.6m. 

Trant counterclaimed for £5m for the cost of redoing the work required and reflecting the possible sums payable to the MoD as a result of Mott’s breaches. Trant argued that Mott had “fundamentally, deliberately and wilfully” breached the SSA in refusing to complete the design deliverables required; provide native data files or calculations; or carry out independent reviews of its designs, in order to pressurise Trant to pay sums that they claimed were not due to Mott.

Mott denied the breaches and sought to rely on the SSA’s exclusion and limitation clauses. Trant argued that express language was required to limit liability in the event of “fundamental, deliberate or wilful” breach.

The decision

Exemption clauses, including those purporting to exclude or limit liability for deliberate and repudiatory breaches, were to be construed by reference to the unambiguous language used by the parties and the normal principles of contract construction, to give effect to the parties’ intention. There was no presumption against the exclusion of liability and no particular form of words was required to achieve the effect of excluding liability.

Although the exclusion was potentially wide-ranging in its effect, it did not preclude all of Mott’s liability or reduce Mott’s obligations to a “mere declaration of intent”. A breach still had adverse consequences for Mott. 

If an exclusion clause is sufficiently clear, it will apply to deliberate or fundamental breaches even if that appears unfair or unreasonable. If the parties intended to exclude “fundamental, deliberate and wilful” breaches of contract, clear contractual wording was required. The court was not responsible for rescuing Trant from a bad bargain.

Why is this important?

This judgment makes it clear that that exclusion and limitation clauses will be construed by the Court by reference to normal principles of contractual construction, regardless of whether there has been a deliberate or wilful breach. 

Any practical tips?

If it is intended that a party in breach should not benefit from limitation or exclusion clauses in particular circumstances, eg in the event that the breach is deliberate or wilful, this must be clearly stated in the contract. 

These carve outs can be particularly important for long-term or high value contracts where a party might otherwise consider it commercially beneficial to simply walk away and pay (capped) damages, instead of continuing to perform the contract.