Before entering any kind of commercial agreement, careful consideration should be given to what, if any, type of exclusion clause you wish to incorporate. These clauses exclude or limit the liability of the parties in certain situations, for example in the event that the contract is breached. They can also restrict the amount of damages recoverable or the type of legal remedies a party can seek if things go wrong in the contractual relationship.

Exclusion clauses are therefore an integral part of the contract and, before committing to any type of exclusion clause, you should evaluate those risks you are prepared to bear when entering the contract and those you are not. In 2021 the Technology and Construction Court (a specialist division of the English High Court whose decisions are highly relevant in the Bahamas) examined the nature of exclusion clauses and provided useful guidance on how they should be interpreted. The case, Mott MacDonald Ltd v Trant Engineering Ltd looked at the issue of whether a party that has fundamentally breached a contract could rely on an exclusion clause. In the event the court decided that the party could. The case is an important one, and we offer some analysis of the decision below, highlighting some of the key takeaways for businesses entering or renewing commercial contracts. ParrisWhittaker is a leading commercial and law firm based in the Bahamas. Our specialist team provide comprehensive advice to e ship owners and others on their contractual rights and obligations.

MOTT ENGINEERING v TRANT ENGINEERING (2021)

The case revolved around an agreement between two engineering firms Mott Engineering and Trant Engineering) to refurbish an RAF property in the Falkland Islands. During the works there was a dispute over payments under the agreement. Mott claimed it was owed £1.6million by Trant. When Trant refused to pay, Mott disabled Trant’s access to the project design work. Trant then sued Mott for the cost of having to recreate the designs from scratch – some £5million.

Key to the dispute was the contract’s exclusion clause. It’s worth reproducing the relevant section of the clause in full. It stated:

“Notwithstanding any other term to the contrary in the Agreement or any related document and whether the cause of action for any claim arises under or in connection with the Agreement in contract or in tort, in negligence or for breach of statutory duty or otherwise. In relation to any and all causes of action as aforesaid:

a. the total liability of the Consultant in the aggregate for all claims shall be limited to £500,000 (Five hundred thousand Pounds)…”

In summary each party argued as follows:

  • Mott denied it had breached the agreement in the first place, although it still sought judgment to the effect that that if it was found to be in breach the exclusion clause they had signed limited their liability to £500.00
  • Trant claimed that Mott’s behaviour in restricting access to the design work represented such a fundamental and wilful breach of contract that the exclusion clause was inoperative. For the clause to be applicable, Mott argued, there should have been clear wording that it applied even in the case of a fundamental breach.

Ultimately the court decided against Trant – even though it would probably have to revisit all of the work it had done under the agreement to date. The judge noted that the exclusion clause and the clause limiting liability to £500,000 did not specifically mention fundamental breaches (i.e. the parties had not removed such breaches from the exclusion clause’s ambit). The contract was clearly drafted, and it had been reached between two commercial entities at arm’s length.

Comment

If the Mott case demonstrates anything, it is the absolute need for contracting parties to avoid unclear contract terms when entering any kind of commercial agreement. This might involve rigorous and time-consuming consideration of all eventualities by you and your legal team. But it will be worth it in the long run. Trant’s argument that it had not had the time to consider all possible outcomes of the agreement (specifically how the exclusion clause might work in particular circumstances) held little sway with the court. The judgment made clear that Trant ‘was in a position to make an assessment of the potential consequences to it of breaches and to insure against such consequences’ Just because Trant had made a ‘bad bargain’ it wasn’t the job of the court to adopt an artificial construction so that Trant could escape from that bad bargain.