Liability Caps: Importance Of Clear Drafting

• Published date: 12 July 2023
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Privacy, Contracts and Commercial Law, Data Protection, Trials & Appeals & Compensation
• Law Firm: Herbert Smith Freehills
• Author: Mr Daniel Woods

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 [2023] 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 [2021] 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.

Background

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...