Clear Exclusion of Liability Leads to Reverse Summary Judgment

A recent High Court judgment provides clear guidance on contractual liability, particularly on exclusions of liability and the application of the Unfair Contract Terms Act 1977 (“UCTA”).

The dispute related to car dealership management software, but the principles apply broadly to other commercial contracts. Pinewood Technologies PLC (“Pinewood”, a UK company) supplied the software to Pinewood Technologies Asia Pacific Limited (“PTAP”, an unrelated Hong Kong company). PTAP made a claim against Pinewood for loss of profits and wasted expenditure in the amount of approximately $312.7 million.  The claims were made notwithstanding that the relevant contracts included terms purporting to exclude liability for loss of profit and wasted expenditure, together with general limitations of liability based on amounts previously invoiced.

Pinewood successfully countered PTAP’s claim and was granted a reverse summary judgment against PTAP (in addition to summary judgment on amounts owing to Pinewood). In doing so, the court made some key findings on exclusions of liability, which we discuss below.

Exclusion of liability

The judgment confirms that the courts will give effect to a clear and unambiguous exclusion of liability clause, even if it has a broad scope or an asymmetrical effect. In this case, the court found that Pinewood’s exclusion clause, taking into account the agreement as a whole, clearly excluded Pinewood’s liability for the losses claimed by PTAP. The court would not strain the wording to interpret a different meaning, even if the parties’ bargaining positions were imbalanced. Accordingly, the liability claimed by PTAP was excluded under the agreement, save for a much smaller claim for wasted expenditure which would be determined at trial and subject to argument as to whether it was contractually limited. 

Does UCTA apply?

UCTA makes certain unreasonable terms in standard terms of business unenforceable. PTAP argued that Pinewood had used its standard terms of business and the exclusion of liability was unreasonable, so UCTA applied and the exclusion clause should not be enforced.

The court disagreed. Although the exclusion of liability had not been amended, other terms of the agreement had been amended. The court applied an earlier Court of Appeal judgment which confirmed that UCTA will not apply if there have been any material changes to the terms. The terms must be “effectively untouched” for UCTA to apply. Also, the exclusion of liability clause did not exclude all liability, so PTAP could potentially recover other types of loss.

Takeaways

This case shows the value of a well-drafted exclusion of liability. The courts will enforce these clauses where they are clear and unambiguous, in line with the usual rules of contractual interpretation.

It is also a reminder that UCTA will not make a liability clause unenforceable if material amendments have been made to the standard terms, even if those amendments were not to the liability clause.

As ever, liability clauses are critical components of commercial contracts.