Commercial Contracts: excluding liability for losses

Commercial Contracts: excluding liability for losses

When will the courts uphold an exclusion clause in respect of losses following a breach? The expert commercial litigation lawyers at Bahamas law firm ParrisWhittaker are highly experienced in advising and representing businesses on their commercial contracts and the potential effects of their terms.

An exclusion clause was central to a recent commercial case in the High Court in London.1

What’s the background to this case?

The claimant company entered into two written agreements with the defendant, an electricity supplier. A master agreement contained the general terms and conditions; and an insulation scheme event transaction document, required the defendant to purchase a specified number of products during the contract period.

In fact, the defendant bought substantially fewer products causing what the claimant claimed was significant loss.  Proceedings for breach of contract followed.  However, the defendant disputed that it was obliged to purchase the products as alleged, and denied breaching the contract.

The defendant also relied on a clause (10.1) in the master agreement excluding liability for indirect losses and limited liability for direct losses to £1,000,000.  The claimant disputed that the clause applied in respect of losses it suffered as a result of the breach of the document.

At issue for the court to consider was whether clause 10.1 did exclude liability for the claimant’s losses.   The court ruled that following the well-established rules of construction, it was generally for the party seeking to rely on the exemption or limitation of liability clause to prove it, subject to exceptions (where the burden was on the claimant).

However, clause 10.1 was ambiguous and the law was not yet clear.  The court said the construction sought by the claimant was more consistent with business common sense and it was unlikely a business man would wish to exclude direct loss.  The court ruled that liability for the claimant’s losses was not excluded under clause 10.1.

What does this mean?

Great care must be taken when negotiating contract clauses, including the wording of exclusion clauses to ensure they are consistent with business common sense.  It is critical to take specialist legal advice before entering into commercial contracts.

How can we help?

The commercial litigation lawyers at Bahamas law firm ParrisWhittaker have years of experience advising commercial organisations on their commercial contracts including exclusion clauses.  If you are negotiating the terms of a commercial contract or have concerns about the effects of an exclusion clause, or any other clause, contact us straightaway for urgent, strategic advice.

1Polypearl Ltd v E.On Energy Solutions Ltd [2014] EWHC 3045