In the case of Internet Broadcasting Corporation (t/a/NETTV) and NETTV Hedge Funds Limited v MAR LLC (t/a MARHedge), the High Court has held that clear, strong drafting would be needed to persuade a court that an exclusion clause covered a deliberate repudiatory breach of contract. This case is a significant development in the law on exclusion clauses. Exclusion clauses will need to be drafted differently going forward.
Internet Broadcasting Corporation (NETTV) was in the business of constructing and providing interactive television platforms. MARHedge provided information and services to the hedge fund industry including arranging industry conferences. MARHedge was controlled exclusively by its president, Gary Lynch.
In May 2005, NETTV entered into an agreement with MARHedge under which NETTV would set up an internet television channel to broadcast material provided by MARHedge. The venture would be funded by subscriptions to the channel that the parties were to share. Under clause 13, the agreement could not be terminated for three years other than in response to a material breach that was not remedied within 30 days. Clause 17 of the agreement contained the exclusion clause:
“...Neither party will be liable to the other for any damage to software, damage to or loss of data, loss of profit, anticipated profit, revenues, anticipated savings, goodwill or business opportunity, or for any indirect or consequential loss or damage.”
The venture was extremely successful and between August 2005 and May 2006, subscriptions to the channel exceeded £600,000. In late May 2006, MARHedge gave notice purporting to terminate the agreement with immediate effect and ceased providing any content for the channel. The parties subsequently agreed that this amounted to a repudiatory breach for which NETTV was entitled to damages. NETTV’s main loss was loss of the profits it would have made had the contract continued for another two years as originally envisaged. The question for the High Court was whether MARHedge could rely on the exclusion clause for its repudiatory breach so as to exempt it from liability in respect of NETTV’s claim for loss of profits.
The High Court held that its role was to construe the true meaning of the exclusion clause. There was a strong presumption that an exclusion clause would not cover a deliberate, repudiatory breach. To cover such a breach, clear words (in the sense of strong language) indicating that it was intended to cover a deliberate, repudiatory breach would be needed. There was a particular need for such clear (strong) language where the breach in question was uninsurable. Language such as “...including deliberate repudiatory acts by the parties to the contract themselves...” would need to be used in such a case.
Furthermore, words, which in a literal sense would cover a deliberate, repudiatory breach, would not be construed so as to do so if that would lead to commercial absurdity and defeat the main object of the contract.
In this case, the starting point was the presumption that the exclusion clause would not cover the deliberate, repudiatory breach of contract. Here the repudiation was a personal one in the sense that it was caused by the controlling mind of MARHedge (its president, Gary Lynch). Such a repudiation was very unlikely to be insurable. Although the literal meaning of clause 17 did cover a deliberate, repudiatory breach, to give effect to this literal meaning would defeat the main object of the contract. There was no clear, strong language to the effect that clause 17 was intended to cover a deliberate, personal, repudiatory breach and no reasonable businessman would understand clause 17 as currently drafted to cover such a breach.
Although this case is a significant development in the law of exclusion clauses aspects of the judgment are unclear. It is not clear, for example, whether the strict approach adopted by the High Court is intended to apply to deliberate, personal repudiatory breaches (as in this case by the ‘controlling mind’ of the company) or to deliberate repudiatory breaches generally (where the breach is not personal in the sense of the company having vicarious liability for the breach).
Nevertheless, in light of this case exclusion clauses should now be drafted to include ‘strong’ language stipulating that the clause covers deliberate, repudiatory breaches if this is what the parties intend. This is likely to lead to more protracted negotiations about the drafting of exclusion clauses.
In this case the parties accepted that UCTA was not applicable (as the contract was freely negotiated between two commercial parties). However, businesses should bear in mind that strong wording might not work when used in standard terms of business as UCTA does apply to these contracts and an exclusion clause will only be enforceable if it is reasonable.