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Sara Nazir

Trainee Solicitor - Sevenoaks

29th September 2021

Will the court protect contracting parties from a “bad bargain”?

Will the court protect contracting parties from a “bad bargain”?

A recent court decision appears to confirm that where commercial parties have agreed terms in a contract (some of which may be unfavourable), the court will not attempt to save one of the parties from a “bad bargain”. The case below considers the effect of exclusion and limitation of liability clauses, which have the potential of reducing or outright excluding a party’s liability for damage arising from its breach of a term under a contract.

What happened in this case?

In Mott Macdonald Ltd v Trant Engineering Ltd [2021] EWHC 754 (TCC), the court was required to consider whether exclusion and limitation of liability clauses within a contract could apply notwithstanding that a party had allegedly committed a fundamental, wilful or deliberate breach of contract.

The claimant (MM) was engaged by the defendant (Trant) to provide design consultancy services. The parties agreed a scope of engagement documented within a settlement and services agreement (SSA). A dispute arose between the parties and MM subsequently brought a claim for non-payment of the work it had completed for Trant. Trant counterclaimed for a considerably higher sum, alleging that MM had “fundamentally, deliberately, and wilfully breached its obligations under the SSA”. Trant’s justification for this counterclaim was on the basis that it had to correct, complete and redo most of the design work that it had contracted MM to do in the first place. Crucially for this case, there was a one – way limitation of liability clause within the SSA limiting the value of claims against MM to £500,000.

What did the court say?

After a short hearing on the specific issue of whether the limitation of liability clause applied, MM was successful in arguing that it did. Although the court acknowledged MM might yet have been liable to Trant under the terms of the agreement, the extent of Trant’s counterclaim could potentially only be limited to £500,000.

The judge explained that it “is important to remember the context in which the SSA is to be interpreted”, going on to say that the court ought to consider the factual matrix at the time the agreement was made. He concluded that the exclusions clause was in the clearest of terms, excluding liability for certain categories of loss, even if the excluded losses resulted from a deliberate or wilful breach.

In applying these principles, the court held that the clauses were set out in clear language capable of covering the breaches and there was no reason to depart from this approach. Accordingly, MM’s claim that any liability must be limited to £500,000 under the terms of the contract was successful.

What should I take from this?

If you are considering including a limitation of liability clause in an agreement (or come across one in a contract offered to you by a third party), be very clear about when it does and does not apply!  For guidance on drafting and negotiating commercial contracts, please contact our Corporate and Commercial team or tel 01732 441250.

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