Limitation Of Liability Clauses: Printing Company's '29m Claim Up In Smoke

• Published date: 21 February 2022
• Subject Matter: Corporate/Commercial Law, Insurance, Corporate and Company Law, Contracts and Commercial Law, Insurance Laws and Products
• Law Firm: Shepherd and Wedderburn LLP
• Author: Mr Iain Drummond

A recent case demonstrates the effectiveness of contractual liability clauses, as a paper printing company's '29.68 million claim has been limited to just '3,225.06.

Benkert UK Ltd v Paint Dispensing Ltd, decided recently by the Scottish Outer House of the Court of Session, considered a limitation of liability clause in a contract between two companies.

Lord Tyre's decision that the contractual term limiting liability was reasonable is a positive sign for parties seeking to protect themselves against contractual claims through their standard terms and a warning to those who do not pay due attention to the fine print of contracts.

Background to the dispute

Benkert, the pursuer, alleged that a fire in its premises causing losses totalling '29,680,235 was due to Paint Dispensing Limited's (PDL's) failure to properly maintain a paint dispenser, as required by the maintenance contract between the parties. Benkert claimed that PDL's maintenance engineer should, when performing PDL's twice-yearly service, have recommended changing clip connections on the dispenser, and the failure to do so resulted in the fire.

As well as contesting the cause of and liability for the fire, PDL contended that any liability was limited by the terms of the contract, to '3,225.06, the "Basic Charge", defined in clause 1.1 as "the annual maintenance charge to be paid by the Customer". This was despite PDL having '5 million of indemnity cover in place.

The parties' contract

Benkert contracted with PDL from 2002 onwards for the maintenance and repair of two paint dispensers that PDL had supplied and installed in Benkert's industrial premises, in which it printed paper. From 2005, an arrangement between the parties was formalised: the defender would visit and service the dispensers twice a year, having provided the pursuer with a maintenance contract beforehand.

Each contract, including the one in place at the time of the fire, included the same limitation of liability clauses, to which English law applied. These provided:

"THE CUSTOMER'S ATTENTION IS SPECIFICALLY DRAWN TO THE PROVISIONS SET OUT BELOW

5.3.1 the Company's total liability in contract, tort, misrepresentation or otherwise arising in connection with the performance or contemplated performance of the Services shall be limited to the Basic Charge;

5.3.2 the Company shall not be liable to the Customer for any indirect or consequential loss or damage (whether for loss of profit, loss of business or otherwise), costs, expenses...