In this case, the court, has confirmed the recent approach of the courts to give effect to limitation clauses and to give effect to their natural and ordinary meaning.
Galliford Try engaged McGee as sub-contractors to design and construct earthworks and substructures at a site in Birmingham. The sub-contract incorporated the JCT Design and Build Sub-Contract with a number of bespoke amendments.
Pursuant to clause 4.21 of sub-contract, Galliford was permitted to deduct from sums otherwise payable to McGee such sums reasonably estimated by them as the amount of loss, damage, expense or cost where McGee had affected the regular progress of the main contract works.
Clause 2.21 of the sub-contract provided that should McGee fail to complete any Section of the works within the relevant contract period for completion, they would be liable for any "direct loss and/or expenses suffered or incurred". If McGee failed to complete the works so as to ensure that Galliford achieved Access Conditions in the main contract, McGee would pay liquidated and ascertained damages. Clause 2.21B of the sub-contract, provided that McGee's liability for "direct loss and/or expense and/or damages" was capped at 10% of the contract value.
Due to delay in the sub-contract works Galliford sought to claim damages for direct loss and expense suffered by reason of McGee's alleged failure to proceed regularly and diligently with the contract works. Initially Galliford intimated a claim in the sum of £1,489,733, a figure that was produced by clause 2.21B of the sub-contract. Subsequently, Galliford reformulated their claims and claimed the sum of £3,318,124.29, of which £2,291,455.55 was not affected by the cap. They sought to differentiate between the losses payable under clause 2.21 and 2.21A from losses payable under clause 4.21. The cap only related to losses otherwise payable pursuant to clause 2.21 and 2.21A.
The issue for Mr Justice Coulson was how to interpret a contractual cap which limited the sub-contractor's liability for direct loss and/or expense and/or damages to 10% of the sub-contract sum.
The decision followed the theme of recent case-law in that a clause which seeks to limit liability "should generally be treated as an element of the parties' wider allocation of benefit, risk and responsibility". Mr Justice Coulson did not interpret the clause narrowly and highlighted a passage by Lord Justice Moore-Bick from a Court of Appeal case in which the judge said:
"[I]n recent years [the court] has been increasingly willing to recognise that parties to commercial contracts are entitled to apportion the risk of loss as they see fit and that provisions which limit or exclude liability must be construed in the same way as other terms".
As such, Mr Coulson stated that there were no special rules in interpreting these clauses and he looked at the 'natural meaning' of the clause which in his view was straightforward. Accordingly, no mention was given to the contra proferentem rule (which provides that where the effect of an exclusion clause is ambiguous it is construed against the party seeking to limit its liability) because Mr Coulson said he had no doubt as to the meaning of the provision. This reasoning is consistent with the approach in the Transocean case we reported on in June 2016, where it was decided that the court should only resort to the rule if the meaning of a contract was ambiguous.
The court rejected the contention that clause 2.21B only capped claims arising under clause 2.21 and 2.21B. Clause 2.21B did not cap claims arising under particular provisions of the contract. It served to cap McGee's liability for an entire class of loss, regardless of how and where that liability arose. No cross reference to McGee's liability under clause 4.21 was necessary. Clause 2.21B was wider than the liability under clause 2.21 and 2.21A and was not merely the product of those clauses. The court considered that it had been, "…the parties' intention to provide a financial cap to Galliford's claims for financial loss arising out of delay disruption, howsoever they arose." The fact that clause 4.21 made no reference to "direct loss" was not indicative that clause 2.21B had no application to clause 4.21, clause, as there was no material difference in the types of loss referred to in each clause.
In short, Galliford's attempt to differentiate the two claims was artificial and uncommercial. Such a distinction would be impossible to operate because often the losses claimed would overlap. All of Galliford's claims were for loss and expense arising out of delay and disruption which were caught by the liability cap in clause 2.21B, regardless of how McGee's liability arose.
Finally, and although it was not necessary for the court to give an opinion on the question in the light of its decision, the court also indicated that it would have upheld McGee's alternative contention that even if the cap in clause 2.21B did not apply to claims made under clause 4.21, the only claims that would be caught by clause 2.21B were those that only arose under clause 4.21. In other words, where the claims feel within 2.21, 2.21A or 4.21, they were not caught by the cap. Any other interpretation would have been uncommercial and rendered the cap otiose.
This is another decision in which the court will not interpret clauses limiting liability restrictively in a commercial context when the clause is clear and unambiguous. The court will give effect to the intention of the parties and the commercial freedom to negotiate and agree the allocation of risk, particularly where the parties are of equal bargaining power.
Another issue which also came up in this case is the potential mismatch between JCT standard terms and bespoke amendments. To avoid future disputes care needs to be taken when agreeing and drafting bespoke amendments that they follow the provisions of the JCT contract.