I have previously commented on the approach taken by the Courts to limitation clauses but recent case law serves to update and inform my previous opinion. The Court of Appeal, in the recent case of Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd, refused to enforce an exclusion clause, despite the apparently clear terms in which it was framed. This adds further pointers as to the approach that the Court will take when considering clauses limiting or excluding liability. There is an additional element to this case that is of interest to a Scots lawyer, as elements of the reasoning adopted by the English Court may be subject to doubt in Scotland. This is due to the different approaches taken to the doctrine of specific implement in the two jurisdictions.
Kudos entered into a contract with Manchester Central Convention Complex Ltd (MCCC) to supply catering services for a large convention centre in Manchester. Under the agreement, Kudos would pay the centre a percentage of its turnover, but would keep all the profit made from the supply of its services. Before the contract was due to expire, the convention centre became dissatisfied with Kudos's performance and sought to terminate the contract. Kudos accepted this, but claimed repudiatory breach and raised an action for damages. This included a £1.3 million claim for loss of profit.
MCCC pointed to an exclusion clause contained in the Agreement (which was fully negotiated) on the following terms:-
"[Kudos] hereby acknowledges and agrees that the Company shall have no liability whatsoever in contract, tort (including negligence) or otherwise for any loss of goodwill, business, revenue or profits…"
The judge at first instance adopted a literal interpretation of the Clause and found in favour of MCCC, ruling that liability for loss of profit was excluded. The Court of Appeal however adopted a purposive interpretation, and concluded that the exclusion clause could not be effective in the circumstances of the case.
The Reasoning of the Court
The Court's reasoning was based on a number of factors, including:-
- Specific performance was not an appropriate remedy in the circumstances of this case;
- If Kudos could not force MCCC to continue with the contract by way of specific performance and it could not claim for loss of profits, Kudos would have no remedy and hence MCCC could have no liability for their breach of contract. The parties cannot have intended that the clause would have this effect. A literal interpretation would therefore be "contrary to business common sense"; and
- As the exclusion clause was part of a clause dealing with indemnities and insurance, the exclusion sub-clause could only have been intended to restrict MCCC's liability in the context of an indemnity given a few sub-clauses above. Had the parties intended a blanket exclusion, the judge stated that "[he] would have expected them to spell that out clearly, probably in a free standing clause".
Clearly the restrictive interpretation adopted by the Court here shows that even explicit wording will not be taken at face value, with exclusions and limitations being dealt with in the context of each commercial case. Many of the general principles identified in my previous blog in the context of limitation clauses are also relevant here, particularly the Courts' view where such clauses are buried or "sneaked in" to the contract.
It may be however that a Scottish Court would have come to a different conclusion. With regard to point (1) above, the Court of Appeal was quick to dismiss the possibility of specific performance, an argument that MCCC had advanced in the proceedings. The option was always available for Kudos to refuse to accept the breach, and sue for performance of the contract rather than damages, given that damages were expressly denied by virtue of the exclusion clause. The Court of Appeal considered the difficulties in MCCC continuing to employ a caterer that it had no confidence in and held this to be an impractical solution.
The case law in Scotland shows a different approach to the remedy of specific implement (as it is known in Scotland) with the leading case of Highland & Universal Properties Limited v Safeway Properties Limited stating "that unlike the position in England, in Scotland a party to a contract was generally entitled to enforce its obligations by decree for specific implement…and the English rule was based on a fundamentally different approach".
In that case, Safeway announced a closure of one of its stores at a shopping centre in Edinburgh, which was in contravention of a "keep open" obligation in their lease. Lord President Rodger acknowledged that it was not ideal for them to be ordered to continue with the lease but stated that "there are happier circumstances in which to run a business, but the decree simply requires the party to perform the obligation which it deliberately undertook in a formal contract."
In Scotland, specific implement is considered an effective remedy as a matter of right, rather than as a discretionary remedy that traditionally is seen as exceptional. It is therefore possible that if the Scottish Courts were analysing the facts of Kudos that an order for specific implement could have been the simple solution. With Kudos then having an effective remedy, the individual circumstances of the case in which the effectiveness or otherwise of the exclusion clause was judged would alter dramatically. These circumstances through a Scottish lens would may not have been prejudicial enough for the exclusion clause to be rendered ineffectual.