SCL Meeting Report: Exclusion and Limitation Clauses Master Class

April 19, 2013

It wasn’t so many years ago that the number of significant cases relating to IT disputes could be counted on one, or perhaps two, hands.  This Master Class seminar quite clearly demonstrated that this is most certainly no longer the position. 

The Master Class was chaired by Jeremy Drew, Partner and Head of the IP, Technology and Outsourcing Group at RPC.  The two key speakers were barristers Alex Charlton QC and Martyn Naylor, both of 4 Pump Court.  Alex in particular was well placed to comment on this topic, having acted for the winning side in BSkyB v EDS.

Alex started off proceedings by reminding the audience of the underlying basics behind exclusion and limitation clauses, which may often be forgotten in the heat of contract negotiations.  He took us through, in some depth, the classifications of exclusions and limitation clauses applied by judges (not something that those drafting the clauses often stop to think about), and the rules on construction. 

Key messages were that exclusion and limitation clauses continue to be construed restrictively (and the more extensive the relevant restriction, the more creative is the construction of it), need to use clear words in order to exclude particular forms of liability (eg if looking to exclude liability for negligence), and will be construed against the party relying on them. Whilst not an IT case, Alex used the example of Dorset County Council v Southern Felt Roofing to illustrate the point – in that case a provision that said that Dorset CC would bear ‘all risk’ of fire was held not to cover the consequences of a fire caused by the negligence of workmen repairing a school roof. 

Alex picked up on the latest case law on what is or is not meant by ‘indirect loss’ – something that must be amongst the top issues facing advisers.  He finished this section with a commentary on GB Gas v Accenture.  His observation was that this case illustrated how the courts can use the rules on construction to deliver the results they want, even when faced with what might appear to be robust and well drafted exclusion and limitation clauses.  Whilst those drafting clauses clearly cannot predict how a court might try to ‘bend’ their words, Alex and Martyn questioned whether a better approach might be to list specifically what forms of loss and damage are recoverable as opposed to trying to carve out what forms are not.

The Master Class then took a side look at ‘other’ exclusion and limitation clauses, particularly ‘no set off’ and ‘time bars’.  The messages were that these types of clauses can be very effective exclusion or limitation clauses, if drafted correctly, but that they should not simply be ignored as ‘boilerplate’.  Martyn cautioned against one-sided no set off clauses.

As the Master Class drew to a close, Alex took the audience back to basics on fundamental breach (and how that affects exclusion and limitation clauses).  He commented that, whilst the ruling in the Net TV case had been heavily criticised in the later AstraZeneca v Albermarle case, the issue of whether an exclusion or limitation clause can effectively cover a party’s fundamental breach has yet to be conclusively determined by the Court of Appeal.  He suggested that the Net TV ‘still has some legs’.

Sadly, the sheer number of cases that Alex and Martyn had to run through meant that we couldn’t quite get to their quick chronology of the leading cases, highlighting the ‘ebbs and flows’ in judicial decision making over the last 25 or so years, nor to a proposed look at possible legal reforms in this area. 

They did, in passing, however comment on the fact that the courts are now more willing to uphold commercial bargains.  Alex in particular observed that in the BSkyB v EDS case the financial cap in the contract was £30m, whereas the charges exceeded £50m, which would have been effective but for the presence of fraud. 

Clearly two hours was not enough to do justice to this particular topic.   

Mark Crichard is a Partner, technology and outsourcing group, at RPC: