A recent High Court decision on the proper construction of a contractual liability cap reminds us of the importance of clear and coherent drafting both within a clause and across the contract as a whole: Drax Energy Solutions Ltd v Wipro Ltd  EWHC 1342 (TCC).
The issue in dispute was whether the relevant clause imposed: (i) an aggregate cap applicable to all claims brought by the claimant; or (ii) multiple caps applicable to each claim.
The relevant clause had not been well-drafted. The court considered that there was language in it that supported both interpretations and, conversely, that both interpretations would require a strained reading of some contractual language. Ultimately, the court drew on the drafting of other clauses in the agreement to inform the meaning of the relevant clause.
The court also considered the leading Supreme Court decision on interpretation of limitation or exclusion clauses, Triple Point v PTT  AC 1148 (considered here). As that case shows, there are no special rules in interpreting such clauses, but the nature of the clause may still have a contextual role to play as it can generally be assumed that, unless clear words are used, parties do not intend to give up rights they would otherwise have at law. On the facts of the present case, however, the court did not consider that this principle carried much weight.
The case concerned the interpretation of a limitation of liability clause in a Master Services Agreement (the “MSA”) by which the defendant, Wipro, had to provide software services to the claimant, Drax. Drax brought claims relating to alleged misrepresentations, lack of quality, delay and the termination of the MSA.
The relevant clause (clause 33.2) was worded as follows:
“Subject to clauses 33.1, 33.3, 33.5 and 33.6, the Supplier’s total liability to the Customer, whether in contract, tort (including negligence), for breach of statutory duty 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.”
The primary legal issue was whether, on a true construction, clause 33.2 provided for a single aggregate cap which applied to Wipro’s liability for Drax’s claim; or multiple caps with a separate financial limit applying to each of Drax’s claims.
Based on the total charges payable by Drax during the first year of the contract, if this was a single aggregate cap, then Drax accepted that the amount it could seek in the proceedings would be limited to £11.5m. If it applied to each of Drax’s claims then Drax could, if those claims were made out, recover the full £31.7m it was seeking.
There was a secondary issue which arose if there were multiple caps. If separate caps applied to each claim then how should “claim” be interpreted? The more narrowly “claim” was defined, the less it would limit Wipro’s liability. Drax contended that claim should be interpreted as “cause of action” – a very narrow definition – which would mean in this case that Wipro’s liability cap would only kick in at £132 million, far in excess of the sums claimed by Drax.
The High Court (Waksman J) held that the cap was a single aggregate cap. The effect of the finding was to limit Drax’s claims to £11.5m.
The language used
In reaching its decision, the court relied on well-established principles of contractual interpretation. Its starting point was the natural and ordinary meaning of the language in the clause. The court identified that certain of the language in clause 33.2 pointed in favour of a single cap. This included the use of the term “total liability” and the absence of wording referring to “each” claim. However, other language pointed in favour of a multiple cap interpretation. In particular the phrase “from the date when the claim first arose” would not, on its face, make sense if multiple claims were covered by the same cap. If the clause was held to be a single cap then that phrase would have to be interpreted as meaning “from the date when the first [of the various] claim[s] arose” which would, at first glance, appear to be a strained interpretation.
The court found that, just on the wording of the clause itself, an interpretation as a single cap was, on balance, to be favoured.
Beyond this, the court put considerable weight on how the drafting of another liability clause, clause 33.3 – which dealt with liability for breaches of a data protection clause – informed the interpretation of clause 33.2. It was common ground that clause 33.3 imposed a single cap for all claims for breaches of the data protection clause (since it referred to the Supplier’s “total aggregate liability” under the agreement “for any and all claims related to” breach of the data protection clause). However it also included the same wording limiting the supplier’s liability by reference to the charges incurred in the 12 months “from the date the claim first arose”. For the purpose of clause 33.3 this must therefore be read as “from the date when the first [of the various] claim[s] arose”. The court considered that the same wording should be construed consistently across both clauses 33.2 and 33.3; this favoured the interpretation of clause 33.2 as a single cap.
In taking this approach, the court proceeded cautiously as it considered that, on any view, clauses 33.2 and 33.3 were not well drafted and did not appear to sit neatly together to form a discrete collection of liability provisions. Nevertheless, in reaching its decision it relied heavily on the wording of clause 33.3 to inform the interpretation of clause 33.2.
The court went on to consider whether “business common sense” pointed in favour of one interpretation or the other, but found that it did not. While it might be said that Drax did not protect itself as much as it could or should have done, in terms of claims to be made, that was quite different from saying that the clause made no commercial sense.
“Triple Point” considerations
The court also considered the leading decision on interpretation of clauses which exclude or limit liability, the Supreme Court’s decision in Triple Point (referred to above). That case shows that the modern approach is not to employ any special rules in interpreting such clauses, but the nature of the clause may still have a contextual role to play in interpreting the clause. That is because, in the absence of clear words, it will generally be assumed that parties did not intend give away rights they would otherwise have at law.
In Triple Point, this principle favoured a broader interpretation of the word “negligence” as otherwise the effect of the clause would be to reduce the claim from £14m to £1m. However, the court in the present case noted that the force of the Triple Point principle must vary from case to case. Here the court considered that it did not carry much weight as there was not the same kind of disparity between the claim and the cap, since on Wipro’s interpretation there was still a cap of £11.5 million.
Meaning of a “claim”
Given the court’s finding that clause 33.2 was a single cap that covered all claims, it did not need to consider the secondary issue as to what would have amounted to a “claim” for the purposes of clause 33.2 if each claim had a separate cap.
However, the court did proceed to consider the issue obiter. It rejected Drax’s primary position that “claim” meant “cause of action”. On that definition, there would arguably be dozens of claims within the proceedings. Such an interpretation would, on a multiple cap approach, rob clause 33.2 of all, or at least most, utility.
However, it also rejected Wipro’s submission that “claim” simply meant “liability”, which would mean there could never be more than one operative claim.
Ultimately the court took a middle ground, finding that there were four broad claims, which corresponded to different causes of action or groups thereof, and which relied on different sets of facts. These reflected a common-sense view of the claims being made.
For further information, please contact:
Daniel Woods, Herbert Smith Freehills