Deliberate breaches are still caught by exclusion clauses and cap on liability clauses

Most commercial contracts (such as distribution and manufacturing contracts) have exclusion clauses.  These clauses exclude the contracting parties’ liability in the event of certain breaches (e.g., liability for loss of profits).   Commercial contracts usually also have caps on liability clauses.  These clauses limit damages under the contract to an agreed sum.

However, there has always been a question as to whether these clauses apply, if a party deliberately breaches the contract or if its breach is so fundamental, it deprives the other party of the benefit of the contract.

This issue was recently considered by the High Court in Mott MacDonald Ltd v Trant Engineering Ltd [2021] EWHC 754 (TCC).

In its decision, the High Court explained that in order to exclude liability, if there is a deliberate or fundamental breach, clear words are required.  However, this does not require the clause to refer to such breaches, providing the clause is set out in clear language capable of covering them.  As the clause in the contract at issue was clear in language and in broad terms that was sufficient.

Comment

This is a good decision for those seeking to rely on standard exclusion and cap on liability clauses, providing their wording is broad and general, as it indicates that these clauses will apply in the event of a fundamental or deliberate breach of contract. This obviously provides welcome certainty for those with a lot of commercial contracts in place.

However, it is important to ensure that such clauses are professionally drafted as the High Court recognised that if an exclusion clause excluded all liability for a breach, the clause is unlikely to apply, which could mean that a party’s liability is unlimited.

Written by Ramsay Monime, Partner