In Markerstudy Insurance Company Limited & Others v Endsleigh Insurance Services Limited the High Court has held that a contractual cap on liability includes contractual interest but excludes statutory interest.
The Claimants (C) were insurance companies writing motor business. The Defendant (D) provided claims handling services to C pursuant to five contracts. C issued proceedings against D alleging breaches of these contracts resulting in losses to C of £14m.
Article 13.2 of the fifth contract provided:
"Endsleigh's total liability in contract, tort (including negligence or breach of statutory duty), misrepresentation, restitution of otherwise, arising in connection with the performance or contemplated performance of the Agreement shall be limited to the aggregate amount of fees received pursuant to clause 6.1 above".
The total fees payable pursuant to clause 6.1 were £3,863,911.
C and D accepted that the effect of Articles 13.2 and clause 6.1 was that D's total liability to C was £3,863,911. The question for the court was whether this sum included or excluded interest. In other words, was C entitled to recover interest on the damages insofar as interest increased the amount payable above £3,863,911?
C argued that if the interest D was to pay was included in the cap then it would effectively be penalised for any delay in the damages being paid. D argued that the contract provided for its "total liability in contract" which would include liability for interest as well as the figure for damages.
Mr Justice David Steel in the High Court held that the contractual cap included contractual interest but excluded statutory interest. Construing Article 13.2, statutory interest was not a "liability in contract" but a discrete statutory liability arising from the exercise of the court's discretion. Accordingly, it was excluded from the cap.
This ruling means that statutory interest can push payments above a contractual cap. It also means that contractual interest on late payments can take up part of a liability cap which would reduce the total non-interest sum payable and reduce the damages available to a claimant for any future breaches of the contract.
Click here for a copy of the judgment.