Parties to agreements often seek to exclude or limit liability for breaches of contract. Some want to exclude liability for certain acts or representations, or types of damage. Others seek to limit their exposure by reference to a monetary amount or to limit the time within which claims must be made.
Certain statutory controls exist under the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999. In addition, the courts tend to control such clauses by construing them strictly against the party seeking to rely on them. Consequently, in cases where the common law rules apply, a party relying on an exclusion clause must show that it clearly and unambiguously excludes or restricts liability for the damage claimed.
Internet Broadcasting Corporation Ltd (t/a NETTV) and another v Mar LLC (t/a MARHedge) [2009] EWHC 844 (Ch), [2009] PLSCS 265 concerned the sudden and unexplained termination of a joint venture agreement under which the parties agreed to set up and operate an internet channel to broadcast information to hedge funds. The defendant information provider gave notice purporting to terminate the agreement with immediate effect. The claimant operators sued for loss of profits, claiming that the defendant had deliberately committed a repudiatory breach of the contract.
The defendant accepted that it was at fault, but sought to rely on a provision that excluded liability for “any damage to software, damage to or loss of data, loss of profit, anticipated profit, revenues, anticipated savings, goodwill or business opportunity, or for any indirect or consequential loss or damage”. The defence was unsuccessful.
The parties had agreed that the legislation did not apply. The court therefore had to decide whether, as a matter of construction, the exclusion clause operated to exclude liability for the lost profits. On a literal reading of the contract, it might have appeared that the clause was sufficiently widely drafted to be effective. However, when interpreting commercial agreements, the courts regularly reject literalism where it conflicts with commercial common sense.
The judge ruled that, in normal circumstances, it could not sensibly be the function of an exclusion clause to allocate the uninsurable risk of deliberate wrongdoing by a guilty party to an innocent party under the agreement; that would require clear and strong language. Words that literally cover a particular situation, as well as a range of lesser situations, will not suffice to exclude liability for deliberate, personal and repudiatory breaches of contract. The exclusion clause therefore was ineffective to exclude liability in this case.
The decision has caused a stir in legal circles. Despite some debate on the finer points of the judgment, it demonstrates that the judiciary is tough on exclusions of liability on the interpretation of clauses that impose them.
Allyson Colby is a property law consultant
