A recent decision of the Technology and Construction Court has decided that a broadly worded exclusion clause was sufficient to exclude liability for deliberate repudiatory breaches of contract. In reaching its decision, the Court considered conflicting caselaw as to the need for explicit language to exclude such serious breaches of contract. The Claimant has applied for permission to appeal, potentially allowing the Court of Appeal to provide clarity in this important area of the law. 

An interpretive presumption against repudiatory breaches?

The leading authorities on exclusion and limitation clauses are the Suisse Atlantique and Photo Production cases, in which the House of Lords rejected the so-called doctrine of fundamental breach which disabled a party from relying on an exclusion clause where a contract had been brought to an end as a result of a fundamental breach of contract, such as by repudiation. Instead it was held that whether an exclusion clause was to be applied to any given breach of contract was a matter purely of contractual interpretation.

In a well-known passage from Suisse Atlantique, Lord Wilberforce noted that the usual rules of contractual interpretation meant “the more radical the breach the clearer must the language be if it is to be covered”. Lord Wilberforce also noted that very broad clauses would be read down if they would otherwise deprive one party’s obligations of all contractual force, as “to do so would be to reduce the contract to a mere declaration of intent”.

Whether the requirement for clear language in relation to radical breaches gives rise to an interpretative presumption has been considered in subsequent cases including in relation to deliberate and intentional breaches. In Internet Broadcasting Corporation Ltd v MAR LLC (“Marhedge”), a Deputy Judge held that there was a strong presumption that an exclusion clause would not be found to cover a deliberate repudiatory breach of contract and that the presumption could only be rebutted by strong and explicit language. This differs from the decision in AstraZeneca UK Ltd v Albemarle International Corp where the High Court held that the correct approach was “simply one of construing the clause, albeit strictly, but without any presumption.” Mr Justice Flaux went on to state in that case that he considered the decision in Marhedge to be wrong on the basis it sought to revive the doctrine of fundamental breach which the House of Lords had concluded was no longer good law.

Similar issues were subsequently considered by the Court of Appeal in Kudos Catering (UK) v Manchester Central Convention Complex. A five-year exclusive supply agreement for catering services at two large convention centres contained a broad exclusion of any liability for loss of business, revenue or profits in favour of the operator of the centres. The operator was alleged to have repudiated the agreement and at first instance the exclusion clause was held to defeat a claim for loss of profits for the remaining period of the agreement. The Court of Appeal overturned this finding, deciding that the clause should be read as applying only to claims arising in the performance of the agreement, not its repudiation. If an exclusion of all liability for financial loss in the event of a repudiation by the owner had been intended, the Court “would have expected them to spell that out clearly, probably in a free-standing clause”. The Court rejected the suggestion that its approach was a resort to the doctrine of fundamental breach overruled in Photo Production. Rather, it was: “a legitimate exercise in construing a contract consistently with business common sense and not in a manner which defeats its commercial object. It is an attempt to give effect to the presumption that parties do not lightly abandon a remedy for breach of contract afforded them by the general law.” A similar conclusion was reached by the Court of Appeal in Transocean Drilling v Providence Resources where a broad exclusion clause covering loss of revenue and loss of profit was said not to contemplate a deliberate repudiation of the contract.

The Marhedge position was raised more recently in Mott Macdonald Ltd v Trant Engineering Ltd, where the Technology and Construction Court (“TCC”) adopted the AstraZeneca critique of Marhedge and upheld a generally worded clause limiting liability to £500,000 against allegations of deliberate repudiatory breaches of contract.

Neither Kudos nor Transocean were considered in the Mott Macdonald case, but a further TCC decision last month covers the similar ground and considers both of these Court of Appeal decisions. 

Pinewood Technologies Asia Pacific Limited v Pinewood Technologies Plc

Two reseller agreements dated 28 July 2017 and 8 January 2019 respectively (the “Reseller Agreements”), were entered into between Pinewood and Pinewood Technologies Asia Pacific Limited (“PTAP”). Under the Reseller Agreements, PTAP was appointed exclusive reseller of Pinewood’s automotive dealer management software (the “Pinewood DMS”) in several countries across the APAC region.

A dispute arose whereby PTAP alleged that Pinewood was in breach of its general obligations under the Reseller Agreements to develop the Pinewood DMS and sought damages in the total sum of approximately USD 312.7 million (the “PTAP Claims”).

Pinewood rejected PTAP’s Claims in their entirety and counterclaimed for approximately £425,000. In defence to PTAP’s Claims, Pinewood relied on, amongst other things, an exclusion clause contained at Clause 16.2 of the Reseller Agreements. This read in relevant part:

“[…] Pinewood excludes, in relation to any liability it may have for breach of this Agreement, negligence under, in the course of or in connection with this Agreement, misrepresentation in connection with this Agreement, or otherwise howsoever arising in connection with this Agreement, and such liability for (1) special, indirect or consequential loss; (2) loss of profit, bargain, use, expectation, anticipated savings, data, production, business, revenue, contract or goodwill; (3) any costs or expenses, liability, commitment, contract or expenditure incurred in reliance on this Agreement or representations made in connection with this Agreement […]”.

In reliance on clause 16.2, Pinewood applied for reverse summary judgment of PTAP’s Claims. PTAP resisted Pinewood’s application, relying on Kudos and claiming that Clause 16.2 was not sufficiently explicit to exclude liability for deliberate repudiatory breaches.

The TCC found that clause 16.2 on its proper construction did apply to exclude PTAP’s Claims. The Court again adopted the AstraZeneca critique of Marhedge and rejected the existence of any general rule from Kudos or Transocean that required explicit language for the exclusion of repudiatory breaches. Clause 16.2 was therefore to be given its clear and natural interpretation which applied to all breaches of the Agreement including repudiatory breaches.

Conclusions and implications

This case appears to be the first decision in which the divergence between Marhedge and Astrazeneca has been considered in light of the Court of Appeal decisions in Kudos and Transocean. The Court has opted for a limited interpretation of these authorities, avoiding any general presumption or special reluctance to extend generally worded exclusion clauses to deliberate repudiatory breaches.

Given the widespread use of generally worded limitation and exclusion clauses, the outcome reached in this case is of considerable importance to commercial parties contracting under English law. Clauses which seek to specifically exclude liability for deliberate repudiatory breaches of contract are unlikely to be acceptable to most counter-parties. Yet without knowledge of the above case law, many parties will assume that generally worded clauses will not be capable of extending to such breaches.

The Claimant has applied for permission to appeal the decision. We may not need to wait long, therefore, before the Court of Appeal has an opportunity to provide definitive guidance on this issue.