Contract limits supplier’s liability in multi-million-pound dispute

A clause imposed a single liability cap for all claims arising out of a multi-million-pound contract; it did not include multiple caps with a separate limit applying to each claim. 

Rob Winder Senior Associate Chartered Legal Executive in our Dispute Resolution team reports on this recent case.

That was the decision of the Technology & Construction Court in a dispute involving Drax Energy Solutions Ltd v Wipro Ltd.

Wipro provided software services to Drax. The court was required to determine preliminary issues concerning the interpretation of a limitation of liability clause. 

Clause 33.2 of the agreement said: “The Supplier’s total liability to the Customer … 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. If the claim arises in the first Contract Year then the amount shall be calculated as 150% of an estimate of the Charges paid and payable for a full twelve months”. 

Clause 33.3 said: “The Supplier’s total aggregate liability…for any and all claims related to breach of any provision …shall in no event exceed 200% of the Charges paid or payable in the preceding twelve months from the date the claim first arose or £20m (whichever is greater)”. 

Drax terminated the agreement early. It alleged that damages of £9.8 million had arisen in respect of quality issues; £9.7 million for delay; £12 million for issues arising from the termination; and £31 million for misrepresentation.

Each of those aspects of its case comprised several specific causes of action. Each aspect concerned separate losses, apart from misrepresentation, which overlapped with the others.

It considered that cl.33.2 imposed separate liability caps on each of its claims; that would mean that Wipro’s maximum possible liability would be £23 million. 

Wipro considered that the clause imposed a single cap for all claims. The claims had arisen in the first contract year; 150% of the charges payable that year equalled £11.5 million, so that would be its maximum liability. 

The court found in favour of Wipro.

It held that the language of cl.33.2, up to “limited to”, strongly suggested that the cap was for all claims. The phrase “total liability” supported that reading, as did the absence of words like “for each claim” after the word “liability”.

Accordingly, the correct interpretation of the language used in and around cl.33.2 was that there was a single cap.

If you would like more information about the issues raised in this article or any aspect of contract law please contact Rob on 01228 516666 or click here to send him an email.