Limitation Of Liability: Court Considers Key Principles Of Interpretation

• Published date: 04 July 2023
• Subject Matter: Corporate/Commercial Law, Contracts and Commercial Law
• Law Firm: Cooley LLP
• Author: Ms Victoria Barlow
• topic: Business of Law,Commercial Litigation,Construction Law,Contracts,Civil Procedure

In Drax Energy Solutions Limited v. Wipro Limited,¹ the Technology and Construction Court considered the proper interpretation of a limitation of liability clause. The judgment provides a useful summary of the principles that apply to such an exercise. It is particularly notable that the court gave very little weight in the circumstances to the notion that in the absence of clear words, the court will assume that parties generally do not intend to derogate from the normal rights they would otherwise have.

Background

The parties contracted for the defendant, Wipro, to provide software services to the claimant, Drax.

The project was unsuccessful, and Drax terminated the contract for alleged repudiatory breaches by Wipro, claiming the following:

• '9.8 million for quality issues.
• '9.7 million for delay.
• '12 million for issues arising from termination.
• '31 million in respect of misrepresentation.

The contract contained a limitation of liability clause that stipulated: '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 [...] 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'.

The claims in respect of the quality issues, the delay and the misrepresentation had arisen in the first year, when the charges were '7,671,118 - 150% of those charges amounts to approximately '11.5 million.

The preliminary issues

The following questions regarding the proper interpretation of the limitation clause were dealt with as preliminary issues:

• Did the limitation clause provide for a single aggregate cap in respect of...