Commercial Contract Law: What Happened In 2016 - Thinkhouse Foundations

Here we provide a round-up of commercial contract law over the last 12 months including key topics such as wilful default - and of course a little bit of Brexit.

Mike Reed: My name is Mike Reed I'm a senior associate in the commercial, IT and outsourcing team at Gowling WLG and this is a podcast in follow up to our most recent ThinkHouse Foundation session. I'm here with my colleague Rachel Pennell who has done a contract law update for us and that's the topic of this podcast today.

Rachel we're seeing a lot of references in contracts to wilful default and deliberate breach. Can you tell us a bit more about these concepts and the context in which they are being used?

Rachel Pennell: Yes we are seeing more and more references to wilful default in our contracts and also similar terms such as deliberate breach and wilful misconduct perhaps because these concepts have been imported from the US. The context in which we are particularly seeing this is in limitation of liability clauses. Parties are agreeing that liability cannot be excluded or limited for wilful default or deliberate breach. So the contractual liability caps and exclusions therefore do not apply. In our view this is something of a concern mainly given the uncertainty around what these terms actually mean. The Courts have attempted to provide some interpretation of these concepts.

So in National Semiconductors v UPS which is a case that was around about 20 years ago, the Courts had to consider what wilful misconduct meant. The High Court in that case found for the Defendant on the basis that wilful misconduct had not been proved which required there to be firstly an intention to do something which the actor knew to be wrong or reckless, in that the actor knew that loss might result from this act but did not care whether loss resulted or not. They also said that recklessness involved somebody taking a risk he knew he ought not to take.

Then the courts in De Beers v Atos, which was a 2010 High Court case, looked at the meaning of deliberate misconduct in the context of a limitation of liability clause which was expressed not to apply where there was wilful misconduct or deliberate default. The Court found that there was a defending order of culpability for the terms, fraudulent misrepresentation, wilful misconduct and deliberate default. Fraudulent misrepresentation in their view obviously involved dishonesty. Wilful misconduct in their view is a person's conduct who knows that he is committing and intends to commit a breach of...

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