There have been a number of cases recently which have looked at the interpretation of exclusion clauses and highlighted the need to ensure that any such clause is drafted in clear and unambiguous terms if it is to be relied on.

The case of Kudos Catering (UK) Ltd v Manchester CCC Ltd [2013] EWCA Civ 38 is an example of the problems that can arise if an exclusion clause is drafted too widely.

Kudos (K) entered into a five-year contract with Manchester CCC (M) to provide catering services. Three years into the contract a dispute arose, as a result of which M purported to terminate the contract. K alleged this amounted to repudiation by M, which K accepted. K claimed some £1.3 million for the loss of the profits it would have earned during the remaining contract term.

M denied having repudiated the contract and brought a substantial counterclaim. It also argued that any liability it may have had to K in respect of its claim for lost profits was precluded by clause 18.6 of the contract, which provided as follows:

"The Contractor hereby acknowledges and agrees that the company shall have no liability whatsoever in contract, tort (including negligence) or otherwise for any loss of goodwill, business, revenue or profits, anticipated savings or wasted expenditure (whether reasonably foreseeable or not) or indirect or consequential loss suffered by the Contractor or any third party in relation to this Agreement...."

Whether this clause worked to exclude any liability for loss of profits suffered by K was tried as a preliminary issue (on the assumption that M repudiated the contract and K accepted that repudiation). At first instance the judge held that the wording was 'perfectly' clear. The clause was given its literal meaning and as such M had no liability to K in respect of its loss of profits claim.

The Court of Appeal did not agree and adopted a more purposive approach. Specific performance was not an appropriate remedy in the circumstances and to apply the exclusion clause to any loss of profits claim K may have against M would mean the contract was "effectively devoid of contractual content". There would be no sanction for non-performance of the contract by M.

The exclusion clause was found in a section headed 'Indemnities & Insurance' and the relevant indemnities were given in the context of the performance of the contract. The Court of Appeal therefore held that clause 18.6 had only been intended to restrict M's liability in relation to the performance of the contract; it did not extend to circumstances which amounted to a failure by M to perform the contract at all. Lord Justice Tomlinson confirmed this amounted to business common sense - it was an attempt to "give effect to the presumption that parties do not lightly abandon a remedy for breach of contract afforded them by general law".

It was accepted that the parties could - had they so wished - have included a provision excluding all liability for financial loss in favour of K, but not M, in the event of a failure to perform. However, had this been the case Lord Justice Tomlinson would have "expected them to spell that out clearly, probably in a free standing clause". The appeal was allowed. On the presumption that M repudiated the contract, clause 18.6 would not work to exclude M's liability to K for the loss of profits it suffered as a result.

The message from the recent string of cases dealing with interpretation of exclusion clauses is to make sure there is no doubt as to what the parties intended. If the clause is ambiguous there is every possibility that a debate will ensue in the event that one party seeks to rely on it to the detriment of another.