Costcutter wins contract dispute over convenience stores’ debts

The Costcutter Supermarkets Group has won a contract dispute with two convenience store operators over whether a limitation clause meant they did not have to pay for goods received.

Stephanie Johnson, Senior Associate Solicitor, reports on this recent case.

The issue arose when Costcutter sought to enforce debts owed by the store operators.

The stores argued that the limitation clause in their trading agreements capped their liability, effectively nullifying their debt.

They claimed the clause limited the total liability of either party in any contractual year to five times the service charge owed by the stores in the previous year.

However, the stores had not paid any service charge in the year prior to the dispute, leading the trial judge to initially rule that their liability was zero.

On appeal, the High Court disagreed with this interpretation. The court emphasised the distinction between primary and secondary obligations in a contract.

A primary obligation, such as the requirement to pay for goods received, was not subject to the same limitations as secondary obligations, which might include liabilities for damages due to a breach of contract.

The court cited recent Supreme Court guidance, particularly the reluctance to assume that broadly drafted limitation clauses could negate primary contractual obligations unless the contract language was unequivocally clear.

The court found that the wording of the limitation clause, including phrases like “or otherwise,” was insufficiently clear to exclude the stores’ primary obligation to pay for the goods.

The stores were therefore held liable for the full amount owed under the trading agreements, along with interest on the outstanding sums.

This decision serves as a reminder that courts are unlikely to interpret limitation clauses as applying to primary obligations unless the contract explicitly states such an intention. Contracting parties are advised to be precise in their language to avoid unintended limitations on their rights.

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