One capped claim or multiple capped claims?
Drax Energy v Wipro (High Court) [2023]
Great care must be taken when drafting liability limitation clauses as otherwise there is a risk of multiple parallel claims which could potentially render the limitation clause effectively redundant.
Facts:
This case related to an agreement under which the defendant, Wipro, provided software services to the claimant, Drax Energy. The agreement took the form of a master services agreement (MSA) under which a number of statements of work (SOW) were entered into over the course of a few months. The project did not progress smoothly, the initial delivery was delayed, revised dates were agreed and subsequently missed, and the project was then terminated.
The court was required to decide issues around the interpretation of the limitation of liability clause in the MSA. Clause 33.2 of the MSA said:-
"Subject to clause … 33.3, ... the Supplier's total liability to the Customer whether in contract, tort (including negligence)… or otherwise arising out of or in connection with this Agreement (including all Statements of Work) shall be limited to an amount equivalent to 150% of the Charges paid or payable in the preceding twelve months from the date the claim first arose. If the claim arises in the first Contract Year then the amount shall be calculated as 150% of an estimate of the Charges paid and payable for a full twelve months."
Clause 33.3 said:
"The Supplier's total aggregate liability arising out of or in relation to this Agreement for any and all claims related to breach of any provision of [the data protection clause] shall in no event exceed 200% of the Charges paid or payable in the preceding twelve months from the date the claim first arose or £20m (whichever is greater)."
It should be noted that clause 33.3 referred to ‘any and all claims’ in the plural whereas clause 33.2 referred to ‘claim’ in the singular.
Drax terminated the MSA. Drax considered that clause 33.2 imposed separate liability caps for each of its ‘claims’. Initially, Drax maintained that it had in excess of 50 different ‘claims’ against Wipro (without even counting the multitude of claims based on misrepresentation) but, by the time of the hearing, Drax had narrowed the number of its claims to either 16 or, alternatively, 4. It claimed damages of £9.8 million in respect of quality issues, £9.7 million for delay, £12 million for issues arising from the termination and £31 million for misrepresentation. Each of those aspects of its case comprised several specific causes of action. Each aspect concerned separate losses, apart from misrepresentation, which overlapped with the others.
Wipro considered that clause 33.2 imposed a single cap for all claims. The claims had arisen in the first contract year. 150% of the charges payable that year equalled £11.5 million, so that would be its maximum liability.
Decision:
The judge held that there was a single aggregate liability cap provided by clause 33.2 which applied to the entirety of the claimant's claims.
Looking at clause 33.2 in isolation, the language, up to "limited to", strongly suggested that the cap was for all claims. The phrase "total liability" supported that reading, as did the absence of words like "for each claim".
Reference was made to the drafting of clause 33.3. It was common ground that clause 33.3 imposed a single cap for all claims relating to a breach of the data protection clause. If there was a single cap for all claims, the reference in clause 33.3 to the date when "the claim first arose" had to mean when the first of the claims (plural) arose, even though that was not explicitly stated. That suggested that the same expression in clause 33.2 should be interpreted in the same way.
Clause 33.3 included the words "aggregate" and "for all and any claims", which were absent from clause 33.2. That could suggest that, absent those words, it was not clear that clause 33.2 contemplated a single cap. However, the court said that it did not automatically follow that the language present in clause 33.3 could be used to interpret the language in clause 33.2.
There were no overriding commercial considerations which weighed against the outcome suggested by the language.
Even though, given the judgment, it was not necessary to consider the position, the court commented that "claim" did not equal "cause of action" for the purposes of clause 33.2. as had been suggested by the claimant. The consequences of that interpretation would be very odd if, contrary to the judgment, clause 33.2 applied on a ‘per claim’ basis. There would, as a result, be a total cap on liability of at least £132 million. That would render clause 33.2 devoid of much of its utility. Equally, in contrast, “claim” did not equate to “liability”.
Points to Note:
- The judgment is useful clarification of the approach taken by the courts to a fairly typical clause limiting liability.
- Whilst the judge seems to have been prepared to give Wipro the benefit of the doubt so far as the interpretation of clause 33.2 was concerned, great care should always be taken with the precise drafting to minimise scope for arguments such as those that featured in this case.
- ‘Rolling’ liability limitations such as the one in issue here are quite difficult to draft because it is difficult to ensure that the clause is capable of covering claims arising in different years. This judgment did not have to assess when a claim ‘arises’ but that could be an important issue particularly where an agreement has been in place over an extended period.
- Avoid limitations that are calculated on a ‘per claim’ basis as that notion is, as the judgment discussed, inherently uncertain.