Those that have read my recent articles on exclusions and limitations (see here and here) would be forgiven for thinking that it is something of a lottery whether an express exclusion or limitation in a contract will actually be enforced by the Courts. Whilst neither creating any new law nor making the current rules much clearer, the recent decision from the Technology and Construction Court in Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd, has provided a useful reminder of the types of factors that the Court will consider and has shown that exclusion and limitation clauses can be effective, provided they are drafted correctly. This will likely be welcome to contractors and consultants, who may have been looking at recent decisions of the Courts with some concern.
Facts of the Case
Elvanite had instructed AMEC to submit a planning application for waste recycling on its behalf in respect of a site in Essex. It was originally intended that the planning application was to have been submitted in November 2007, but there were several delays and the application was ultimately not granted until March 2009. Elvanite claimed that this delay was caused by AMEC's negligence and had caused a deal which it had in place to sell the land to fall through. Consequently, they sought to recover the profit lost from the deal from AMEC as they eventually sold the site for a lower price.
The Exclusion/Limitation Clauses
One of the defences to the claim raised by AMEC was that liability was excluded as a result of two separate terms of the contract, which were on the following terms:-
- "Clause 10: AMEC shall NOT be responsible for any consequential, incidental or indirect damages" and
- "Clause 11: The total liability of AMEC… shall be limited to the compensation actually paid to AMEC for the Services or £50,000 whichever is less. All claims by CLIENT shall be deemed relinquished unless filed within one year after substantial completion of the Services"
AMEC denied liability and based on these clauses also argued that in any case, Clause 11 barred any valid claim as no claim had been filed within a year and even if Clause 11 did not apply, all liability for loss of profit suffered by Elvanite was excluded through the operation of clause 10. Elvanite alleged that the two clauses were unreasonable under the Unfair Contract Terms Act 1977 ("UCTA").
The Court found in favour of AMEC on the facts and held that they were not responsible for the delay in the granting of planning permission and were therefore not negligent. The Court also went on to consider the exclusion and limitation arguments and held that they were all reasonable under UCTA for the following reasons:-
- both commercial organisations are relatively substantial and their respective bargaining positions were broadly equal;
- although it is axiomatic that they be construed strictly, terms excluding or limiting liability are not uncommon in contracts for the supply of goods and services, particularly in circumstances where their goods or services are only a small part of a much larger machine or structure; and
- the claimant had read the terms and conditions and raised no objections, so could not be said to be unaware of what they said.
Interestingly, the judgement also noted that there was no "insurance discrepancy" as was the case in Trustees of Ampleforth Abbey Trust v Turner & Townsend. In that case, a liability cap of £111,111 was held to be unreasonable considering the obligation to maintain PI insurance at a level of £5million. There was no such insurance obligation placed on AMEC in the contract in this case.
The case provides a useful reminder that exclusion and limitation clauses can be effective in the right circumstances, but does again highlight the importance of careful drafting to ensure that these will be enforced by the Courts.
The other interesting point to note is the reference in this case to the Trustees of Ampleforth Abbey Trust case and the corresponding comments on insurance. This case did suggest that if AMEC had been under an obligation to maintain insurance at a much higher level than the cap, the cap would be unreasonable under UCTA, which was of course the reasoning employed in the Ampleforth case. Consultants and Contractors should be reminded that any clauses in their standard terms capping or limiting liability that sit awkwardly with a separate obligation to maintain insurance could well mean that the former clause will be considered unreasonable and will not be enforced by the Courts.