Contract for joint venture – Exemption clause – Clause excluding liability of either party for loss of profits – Defendant terminating contract before end of contractual term – Claimants seeking damages for repudiatory breach of contract – Whether defendant entitled to rely on exemption clause – Whether clause covering deliberate personal repudiatory breach – Preliminary issue determined in favour of claimants
The first claimant was in the business of constructing and providing internet television platforms. The defendant, a US corporation, provided information and services to hedge funds. In 2005, they entered into a written agreement under which the first claimant was to set up and provide an internet television channel to broadcast material agreed with the defendant, which would support and publicise the services of the channel and provide content. The contract could not be terminated in the first three years save in response to a material breach that was not remedied within 30 days of a notice requiring such a remedy. The second claimant, a subsidiary of the first claimant, was set up in order to finance the venture, by selling opportunities to hedge funds and related organisations to appear on the channel. This proved successful; sales of around £600,000 were achieved between August 2005 and May 2006. However, in May 2006, the defendant gave notice purporting to terminate the agreement with immediate effect.
The claimants brought proceedings against the defendant for damages for repudiatory breach of contract. The defendant admitted the breach but contended that it was exempted from liability for loss of profits pursuant to an exemption clause in the agreement. That clause provided that “neither party will be liable to the other for any…loss of profit…or for any indirect or consequent loss or damage”. However, that was expressly subject to the preceding clause, which stated: “Nothing in this agreement shall operate to exclude or limit…liability that cannot be excluded or limited under applicable law.” The claimants contended that a deliberate, personal repudiatory breach of the kind performed by the defendant could not be limited or excluded. The defendant argued that if the clause was not repugnant, in that it left open an ability to sue for substantial loss, it should be given effect in its literal terms. A preliminary issue was tried as to whether the exemption clause covered a deliberate, personal repudiatory breach.
Held: The preliminary issue was determined in favour of the claimants.
No rule of law prevented exemption clauses from applying to a fundamental breach. The issue was one of construction of the relevant contractual provisions. None the less, there was a strong presumption against construing an exemption clause so as to cover deliberate, repudiatory breach. The language used would have to be clear and strong before the court would find that such a breach was covered: Suisse Atlantique Société d’Armement SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361 and Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 applied. It was appropriate to take a stricter approach where the wrongdoing was personal to the wrongdoer than was necessary in cases of vicarious liability, since it was less likely that the parties would have intended the words of an exemption clause to cover a deliberate personal repudiation. In the case of a corporate entity, personal liability referred to the relevant controlling mind. Further, an exemption clause would not normally be interpreted as extending to a situation that would defeat the main object of the contract or create commercial absurdity, even where that was the literal meaning of the words used: Tor Line AB v Altrans Group of Canada Ltd (The TFL Property) [1984] 1 WLR 48 and Sirius International Insurance Co (Publ) v FAI General Insurance Ltd [2004] UKHL 54; [2004] 1 WLR 3251 applied. Since the proper function of an exemption clause in a commercial contract was to allocate insurable risk, an exemption clause should not normally be construed as covering an uninsurable risk or one that was unlikely to be insurable, such as deliberate wrongdoing by a party to the contract.
In the instant case, the exemption clause did not cover a deliberate, personal repudiatory breach of contract. Such a breach by the relevant mind of the defendant, namely its president, was either uninsurable or unlikely to be so. The exemption clause did not contain strong language to rebut the presumption that it was not intended to cover a deliberate repudiatory breach. It contained no clear statement that deliberate wrongdoing was intended to be covered, and no reasonable businessman would understand the words to cover such a situation. The literal meaning of the words used would defeat the main object of the contract as a joint venture in internet broadcasting for mutual profit for an agreed period. There was no repugnancy in the instant case, since, read literally, the clause left open the possibility of damages for matters other than loss of profits, such as set-up costs. However, that did not answer the question concerning the true construction of the clause: euNetworks Fiber UK Ltd v Abovenet Communications UK Ltd [2007] EWHC 3099 (Ch) and Mitsubishi Corporation v Eastwind Transport Ltd (The Irbenskiy Proliv) [2004] EWHC 2924 (Comm); [2005] 1 Lloyd’s Rep 383 distinguished. The defendant was therefore liable for its breach.
Antony White QC and Eleni Mitrophanous (instructed by Bankside Commercial Ltd) appeared for the claimants; Anthony Boswood QC and Simon Atrill (instructed by Lewis Silkin LLP) appeared for the defendant.
Sally Dobson, barrister
