Limitation and exclusion clauses in commercial contracts frequently pose a major headache for the parties, but what about persistent breaches? The award-winning commercial lawyers at Bahamas law firm ParrisWhittaker are highly experienced in advising commercial clients on contract breaches and clauses that limit liability.
A recent High Court1 ruling from the UK provides important clarification on the limits of such clauses where one party persistently breaches the contract terms. The ruling has persuasive authority on the courts in The Bahamas and should be noted.
What’s the background?
An exclusion or limitation clause is a clause often found in commercial contracts which purports to exclude or limit a party’s liability or the rights and remedies of the non-breaching party.
In this case, an engineering company sought summary judgment for a debt arising out of a settlement and services agreement which had governed the provision of design services for a £55m power station in the UK.
However, the defendant argued that the claimant had committed a number of breaches fundamentally, deliberately or wilfully. The claimant denied this but countered that even if it had been in breach, the contractual clauses limited its liability.
The court had to decide whether the defendant’s counterclaim was in fact limited by the clauses relied on by the claimant. In its judgment, the court emphasized the clear wording of the contract. Crucially, the clauses were set out in clear language capable of covering breaches such as those alleged by the defendant. They were in a bespoke agreement intended to be a comprehensive regulation of the parties’ future dealings.
To accept the arguments of the defendant would, said the court, amount to the implication of exceptions to the clear terms of those clauses. There was, therefore, no basis for a construction which would effectively restrict the clear scope of those clauses.
On a proper construction, the relevant clauses applied to any contractual breach by the claimant, including those which were fundamental, deliberate or willful. The claimant’s application for summary judgment was therefore allowed, enabling it to pursue the debt claimed.
What does this mean?
Any business entering into contractual negotiations must carefully consider the wording of limitation or exclusion clauses which are intended to form part of the final draft. For instance, what is actually intended by the clause as drafted; and to what extent will such a clause apply in the event of a breach?
The ruling demonstrates that in the event of a dispute, the court will consider the plain language of the contract .
What should we do now?
Taking specialist advice from expert commercial solicitors is vital in the event of contractual disputes. Where a dispute arises around limitation and exclusion clauses, seek advice as early as possible to ensure your commercial interests are properly protected from the outset.
Contact the experienced commercial disputes lawyers at ParrisWhittaker for robust assistance and representation.
